Question

On January 1, 2018 CCSU Co. issue two bonds and an installment plan to Jon's Co. to finance its construction: 

1. A five-year zero coupon bond with par value at $1,000,000 with annual effective interest rate at 6%.

2. A three-year bond with par value of $500,000 with interest paid every 6 months (June 30 and December 31), the annual coupon rate is 4% and effective interest rate is 3%. 

3. A 3-year installment plan with annual payment of $50,000 staring from December 31, 2018 with annual 2. . effective rate of 5%. 

Required:

 1. What is the total cash CCSU Co. received at January 1, 2018?

 2. What is the interest expense incurred for the year of 2018 and 2019?

 3. Ass uming there is no pre-payment penalty, CCSU Co. wants to pay off the zero coupon bond at December 31, 2020, how much CCSU should pay?

Answer 1

Zero Coupon Bond
Coupon Amount		$1,000,000.00
Effective Interest Rate		6%
Bond Amount		$747,258.17
3 Year Bond
	Period	Interest	Effective I Ammort.
	1	10000	9829.94
	2	10000	9662.78
	3	10000	9498.45
	4	10000	9336.92
	5	10000	9178.14
	6	10000	9022.06
	6	500000	451103.02
	TOTAL	$560,000.00	$507,631.32
3 Year Installment Plan
	Period	Amount	Effective I Ammort.
	2018	50000	47619.05
	2019	50000	45351.47
	2020	50000	43191.88
			136162.40
Total Bond Amount Recd		$1,391,051.89	ANS
		(136162.4 + 507631.32 + 747258.17)
INTEREST EXPENSE
Zero Coupon
	Opening	Interest	Closing
2018	$747,258.17	$44,835.49	$792,093.66
2019	$792,093.66	$47,525.62	$839,619.28
2020	$839,619.28	$50,377.16	$889,996.44
	$889,996.44	$53,399.79	$943,396.23
	$943,396.23	$56,603.77	$1,000,000.00
3 Year Bond	(10000*4)		40000
3 Year Installment
	Opening	Interest	Closing
	$136,162.50	$6,808.13	$142,970.63
	$142,970.63	$7,148.53	$150,119.16
Total Interest	2018	2019
	$6,808.13	$7,148.53
	$20,000.00	$20,000.00
	$44,835.49	$47,525.62
	$71,643.62	$74,674.15	ANS
Amount Payment
CCSU co. should pay amount of 889996.44$ at the end of Dec 31, 2020