Question

Teal Inc. has issued three types of debt on January 1, 2020, the start of the company’s fiscal year. (a) $11 million, 11-year, 14% unsecured bonds, interest payable quarterly. Bonds were priced to yield 12%. (b) $25 million par of 11-year, zero-coupon bonds at a price to yield 12% per year. (c) $16 million, 11-year, 10% mortgage bonds, interest payable annually to yield 12%.

Prepare a schedule that identifies the following items for each bond: (1) maturity value, (2) number of interest periods over life of bond, (3) stated rate per each interest period, (4) effective-interest rate per each interest period, (5) payment amount per period, and (6) present value of bonds at date of issue. (Round stated and effective rate per period to 2 decimal places, e.g. 10.25%. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.)

Unsecured
Bonds

Zero-Coupon
Bonds

Mortgage
Bonds

(1)Maturity value$ $ $ (2)Number of interest periods(3)Stated rate per period % % %(4)Effective rate per period % % %(5)Payment amount per period$ $ $ (6)Present value$ $ $

Answer 1

		Unsecured	Zero-Coupon	Mortgage
		Bonds	Bonds	Bonds
	Maturity value	11,000,000	25,000,000	16,000,000
	Number of interest periods	44	11	11
		(11 X 4)
	Stated rate per period	3.50%	0%	10%
		(14%/4)
	Effective rate per period	3.00%	12%	12%
		(12%/4)
	Payment amount per period	385,000	-	1,600,000
		11000000 X 3.5%	25,000,000 X 0%	(16,000,000 X 10%
	Present value	12,329,790	7,175,000	15,992,000
	Unsecured
	Bonds
	Present Value of annuity factor for 3% for 44 periods =	24.254
	Payment amount per period	385,000
A	Present value	9,337,790
	Present value of interest factor for 44th period	0.272
B	PV of maturity value	2,992,000
	(11,000,000*.272)
	Total present value(A+B)	12,329,790
	Zero-Coupon
	Bonds
	Present value of interest factor @12% for 11th year	0.287
	Maturity value	25,000,000
	Present Value.	7,175,000
	Mortgage
	Bonds
	Present vlaue of annuity factor for 10% for 11 periods	6.495
	Preiodic payment	1,600,000
A	Present value	10,392,000
	Present value of interest factor for 11th year	0.350
	Maturity value	16,000,000
B	Present value	5,600,000
	Total present value(A+B)	15,992,000