Question

On January 1, Manderlee Inc. issued $180,000 of 9% 5-year bonds when the market interest rate
was 10%. The bonds pay interest semiannually on June 30th and December 31. Proceeds
received were $173,050.
These bonds were issued at a DISCOUNT/PREMIUM (circle one) because the Contract Rate is
EQUAL TO/ GREATER THAN/ LESS THAN (circle one) the Market Rate
Record the following transactions:
Bond issue on January 1
Paid semiannual interest on June 30
Amortized the bond premium or discount

Answer 1

	Solution
	Bond Face Value	$180,000
	Coupon Interest rate	9 % per annum
	Semi- Annually coupon Interest Rate	9%/2=4.5%
	$ 180,000 x 4.5% = $ 8,100
	Yield to Maturity(YTM)	10%
	Semi Annually	10%/2 = 5%
	Maturity Period of Bond	5 Years
	Semi Annually Period	5 x 2 = 10 period
	Now
	Calculation Of present value of Bond
1	Present Value of Bond Interest
	Coupon Interest (a)	$ 8,100
	Present Value Annuity Factor at 5 % YTM, 10 period (b)	7.72173493
	Present Value (axb)	$ 62,546.0530
2	Present Value of Bond Proceeds
	Bond Proceed at end (a)	$ 173,050
	Present value factor at 5 % , 10 period   (b)	0.61391325
	Present Value   (axb)	$ 106,237.6880
3	Total Present Value of Bond (1+2)	$ 168,783.741
	Since present value of bond is less than its face value, it is at discount
4	Calculation of Discount on Bond
	$ 180,000 - $ 168783.741 x 12 / 6 x 100 =	12.4625%
	$ 180,000
	At conclusion we can say Bond is issued at discount of 12.4625% per annum
	Please feel free to ask if anything about above solution in comment section of the question.