Question

Coney Island Entertainment issues $1,500,000 of 5% bonds, due in 10 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:

2. The market interest rate is 6% 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. Round your answers to nearest whole dollar.)

Answer 1

a.	Issue price of bond	=	=-pv(rate,nper,pmt,fv)			Where,
		=	$        13,88,419			rate	3%
						nper	20
						pmt	$             37,500
						fv	$       15,00,000
b.	Amortization Schedule:
	Semi annual period ending on	Interest expense	Coupon paid in cash	Discount amortized	Unamortized Discount	Carrying value of bond
	January 1	0	0	0	$       1,11,581	$        13,88,419
	June 30	$                 41,653	$              37,500	$         4,153	$       1,07,428	$        13,92,572
	December 31	$                 41,777	$              37,500	$         4,277	$       1,03,151	$        13,96,849
	working:
	Interest expense	=	$        13,88,419	*	3%	=	$             41,653
	Discount amortized	=	$              41,653	-	$           37,500	=	$                4,153
	Unamortized discount	=	$          1,11,581	-	$             4,153	=	$          1,07,428
	Carrying value	=	$        13,88,419	+	$             4,153	=	$       13,92,572