In: Accounting
Company Y is issuing bonds. They plan to issue 10,000, $1000 par, 6% bonds that pays semi-annual for 5 years. If the bond price is $1020, what is the market annual rate of return? (Percentage, 2 dp)
Bond Amortization Schedule | ||||||
Effective Interest Method | ||||||
Period | Semi-Annual Interest payment ( Face Value @3% ) - A | Interest Expense (Carrying amount @ 2.77% ) -B | Amortization of Premium C = ( A-B ) | Bond Premium ( Period opening Amount - C ) | Carrying Amount $ | |
0 | 20 | 1,020 | ||||
1 | 30 | 28 | 2 | 18 | 1,018 | |
2 | 30 | 28 | 2 | 16 | 1,016 | |
3 | 30 | 28 | 2 | 15 | 1,015 | |
4 | 30 | 28 | 2 | 13 | 1,013 | |
5 | 30 | 28 | 2 | 11 | 1,011 | |
6 | 30 | 28 | 2 | 9 | 1,009 | |
7 | 30 | 28 | 2 | 7 | 1,007 | |
8 | 30 | 28 | 2 | 5 | 1,005 | |
9 | 30 | 28 | 2 | 2 | 1,002 | |
10 | 30 | 28 | 2 | 0 | 1,000 | |
The market annual rate of return is 5.54%. | ||||||