Question
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On 1/1/21 Big issued $100,000 of 11%, 20 year bonds at 104,000. The bonds are dated...
On 1/1/21 Big issued $100,000 of 11%, 20 year bonds at 104,000. The bonds are dated 1/1/21, and pay interest each 12/31.
1.Using Excel's IRR function, what is the effective rate on this bond issue?
2.What is interest expense for 2021?
3.What is interest expense for 2022?
4.What is the remaining "premium on bonds" at the end of 2024?
5.What is the balance in the "premium on bonds" at the beginning of 2029?
Solutions
Expert Solution
| Qn.1 | Particulars | ($) |
| initial investment | -104000 | |
| Year 1 income | 11000 | |
| Year 2 income | 11000 | |
| Year 3 income | 11000 | |
| Year 4 income | 11000 | |
| Year 5 income | 11000 | |
| Year 6 income | 11000 | |
| Year 7 income | 11000 | |
| Year 8 income | 11000 | |
| Year 9 income | 11000 | |
| Year 10 income | 11000 | |
| Year 11 income | 11000 | |
| Year 12 income | 11000 | |
| Year 13 income | 11000 | |
| Year 14 income | 11000 | |
| Year 15 income | 11000 | |
| Year 16 income | 11000 | |
| Year 17 income | 11000 | |
| Year 18 income | 11000 | |
| Year 19 income | 11000 | |
| Year 20 income | 11000 | |
| IRR | IRR(E4:E24) | |
| 9% |
| Qn.2 | |||
| Interest expense for 2021 | |||
| Interest rate is 11% | $100,000*11% | $11,000 |
| Qn.3 | Interest expense for 2022 | ||
| Interest rate is 11% | $100,000*11% | $11,000 |
| Qn.4 | Remaining premuim on bonds at the end of 2024 | |
| Total premuim | $4,000 | |
| life of bond | 20 years | |
| Remaining premuim on bonds at the end of 2024 | 4000-(4*200) | |
| $3,200 |
| Qn.5 | Balance in premuim on bonds at the beginning of 2029 | 4000-(8*200) |
| $2,400 |
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