Question

Prepare amortization schedule for the bond issuances. Note interest is semi- annual for the coupon bonds and you may assume annual for the zero- coupon bonds. ABC Co. issued $3,527 million face value, 20-year, zero coupon bonds on July 1, 2017 that mature June 30, 2037 for a cash price of $2,619 million. The effective market interest rate at issuance was 1.5%. Amounts shown in millions.

Answer 1

Periods	Opening book value of bond (1)	Interest expense (2) (1 x 1.5%)	Interest paid (3)	Closing book value of bonds (1 + 2 - 3)
1	2,619.00	39.29	-	2,658.29
2	2,658.29	39.87	-	2,698.16
3	2,698.16	40.47	-	2,738.63
4	2,738.63	41.08	-	2,779.71
5	2,779.71	41.70	-	2,821.41
6	2,821.41	42.32	-	2,863.73
7	2,863.73	42.96	-	2,906.68
8	2,906.68	43.60	-	2,950.28
9	2,950.28	44.25	-	2,994.54
10	2,994.54	44.92	-	3,039.46
11	3,039.46	45.59	-	3,085.05
12	3,085.05	46.28	-	3,131.32
13	3,131.32	46.97	-	3,178.29
14	3,178.29	47.67	-	3,225.97
15	3,225.97	48.39	-	3,274.36
16	3,274.36	49.12	-	3,323.47
17	3,323.47	49.85	-	3,373.33
18	3,373.33	50.60	-	3,423.93
19	3,423.93	51.36	-	3,475.28
20	3,475.28	52.13	-	3,527.41

The cash value of the bonds should be multiplied with the effective interest rate year on year to arrive at the face value of the bonds, that will be paid at the end of the period of bond. No interest would be actually paid since the bond carry's zero coupon