On January 1, 20X0, Washington Park District issued $1000 of 5-year, 6% debentures. Interest is paid...

On January 1, 20X0, Washington Park District issued $1000 of 5-year, 6% debentures. Interest is paid semiannually. The market interest rate at issuance was 10%.

1. Compute the proceeds from issuing the debentures.

2. Prepare an analysis of this bond transaction. Show entries for the issuer concerning (a) issuance, (b) first semiannual interest payment, (c) second semiannual interest payment, and (d) payment of maturity value.

	Present value of $1	Present value of $1 annuity
n=5, i=10%	0.62092	3.79079
n=10, i=5%	0.61391	7.72173
n=5, i=6%	0.74726	4.21236
n=10, i=3%	0.74409	8.53020

Note: Use only the relevant present value information for Question 2.

Solutions

Expert Solution

Requirement 1.

Face Value of Bond = $1,000

Annual Coupon Rate = 6.00%
Semiannual Coupon Rate = 3.00%
Semiannual Coupon = 3.00% * $1,000
Semiannual Coupon = $30

Time to Maturity = 5 years
Semiannual Period = 10

Annual Interest Rate = 10.00%
Semiannual Interest Rate = 5.00%

Issue Value of Bond = $30 * PVA of $1 (5.00%, 10) + $1,000 * PV of $1 (5.00%, 10)
Issue Value of Bond = $30 * 7.72173 + $1,000 * 0.61391
Issue Value of Bond = $845.56

jeff jeffy answered 1 year ago

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