Question

Christmas Anytime issues $810,000 of 7% bonds, due in 20 years, with interest payable semiannually on June 30 and December 31 each year.

   

Calculate the issue price of a bond and complete the first three rows of an amortization schedule when:

Required:

1. The market interest rate is 7% and the bonds issue at face amount. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Do not round interest rate factors.)

2. The market interest rate is 8% and the bonds issue at a discount. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Do not round interest rate factors.)

3. The market interest rate is 6% and the bonds issue at a premium. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Do not round interest rate factors.)

Answer 1

1	The market interest rate is 7% and the bonds issue at face amount
	Bond Par Value (FV)		$810,000
	Coupon Amount (PMT)		28350	(7%*810000)/2
	Yield to Maturity (Rate)	Semi Annual	0.035	7%/2
	No of Payments (NPER)		40	20*2
	Value of Bond can be calculated using PV function in excel
	($810,000.00)		PV(3.5%,40,28350,810000)
	Issue Price	$810,000
	Date	Cash Paid (Par Value*Coupon Rate)	Interest Expense (Issue price * Market Rate)	Increase in carrying value	carrying value
	1/1/2018			0	$810,000
	6/30/2018	$28,350	$28,350	$0	$810,000
	12/31/2018	$28,350	$28,350	$0	$810,000
2	The market interest rate is 8% and the bonds issue at a discount
	Bond Par Value (FV)		$810,000
	Coupon Amount (PMT)		28350	(7%*810000)/2
	Yield to Maturity (Rate)	Semi Annual	0.04	8%/2
	No of Payments (NPER)		40	20*2
	Value of Bond can be calculated using PV function in excel
	($729,839.27)		PV(4%,40,28350,810000)
	Issue Price	$729,839.27
	Date	Cash Paid (Par Value*Coupon Rate)	Interest Expense (Issue price * Market Rate)	Increase in carrying value	carrying value
	1/1/2018			0	$729,839.27
	6/30/2018	$28,350	$29,194	($844)	$728,996
	12/31/2018	$28,350	$29,159.83	($810)	$728,186
3	The market interest rate is 6% and the bonds issue at a premium
	Bond Par Value (FV)		$810,000
	Coupon Amount (PMT)		28350	(7%*810000)/2
	Yield to Maturity (Rate)	Semi Annual	0.03	6%/2
	No of Payments (NPER)		40	20*2
	Value of Bond can be calculated using PV function in excel
	($903,614.83)		PV(3%,40,28350,810000)
	Issue Price	$903,614.83
	Date	Cash Paid (Par Value*Coupon Rate)	Interest Expense (Issue price * Market Rate)	Decrease in carrying value	carrying value
	1/1/2018			0	$903,614.83
	6/30/2018	$28,350	$27,108	$1,242	$904,856
	12/31/2018	$28,350	$27,146	$1,204	$906,061