Question

1) Determine the price of a $1 million bond issue under each of the following independent assumptions:

	Maturity	Interest paid	Stated rate	Effective (market) rate
1	10 years	Annually	10%	12%
2	10 years	Semiannually	10%	12%
3	10 years	Semiannually (July 1 and January 1)	12%	10%
4	20 years	Semiannually	12%	10%
5	20 years	Semiannually	12%	12%

2) Prepare journal entries to record the issuance for each of the following the above independent assumptions

3) Only for Assumption 1 and 2, prepare an amortization schedule that determines interest at the effective rate.

Answer 1

formulas used for bond value is given in the next image -

journal entries -

amortization schedule (1)

amortization schedule (2)