Question

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Christmas Anytime issues $650,000 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:

The market interest rate is 6% and the bonds issue at a discount.

Answer 1

Ans.	Given
	Maturity Period 10 Years
	Coupon rate (Pay Out Semiannually)	5.00%
	YTM (Yield To Maturity)		6.00%
	Coupon		16,250
	Bond Value		650,000
A)
	No. of Periods (N)= 20 (2*10 Years)
	YTM Per period= 6%/2= 3%
	Interest per Period= 650000*5%/2=16250
		Issue Price of Bond =	Interest	+	Interest	+	- - - - - - - - - - - - - - -	+	Interest+ Maturity Value
			(1+YTM)^1	(1+YTM)^2	(1+YTM)^N
		Issue Price of Bond =	16250	+	16250	+	- - - - - - - - - - - - - - -	+	16,250+6,50,000
			(1+0.03)^1	(1+0.03)^2	(1+0.03)^20
		Issue Price of Bond =	601,648

B)		(a)	(b)	(c)	(a+b-c)
	Date	Opening Value	Interest Expense @ 3%	Interest Paid @ 2.5%	Carrying Value
	30/06	601,648	18,049	16,250	603,448
	31/12	603,448	18,103	16,250	605,301
	30/06	605,301	18,159	16,250	607,210
			(Opening Value* 3%)	(Face Value i.e. 6,50,000 * 2.5%)