Question

4. ABC Corp issues a $1000.00 bond. The bond is priced at $1,052.42. It matures in three (3) years. The bond pays a 10% coupon and it yields 8% compounded semiannually. Prepare a bond premium amortization schedule for the bond.

Answer 1

Step-1:Semi annual payment
Semi annual payment	=	=PMT(rate,nper,-pv,fv)		Where,
	=	$       50.00		rate	=	4%
				nper	=	6
				pv	=	$ 1,052.42
				fv	=	$ 1,000.00
Step-2:Bond premium amortization
Semi annual period:
		Semi annual coupon	Interest Expense	Premium amortized	Unamortized Premium	Carrying Value
0					$    52.42	$ 1,052.42
1		$       50.00	$    42.10	$       7.90	$    44.52	$ 1,044.52
2		$       50.00	$    41.78	$       8.22	$    36.30	$ 1,036.30
3		$       50.00	$    41.45	$       8.55	$    27.75	$ 1,027.75
4		$       50.00	$    41.11	$       8.89	$    18.86	$ 1,018.86
5		$       50.00	$    40.75	$       9.25	$       9.62	$ 1,009.62
6		$       50.00	$    40.38	$       9.62	$       0.00	$ 1,000.00
Working:
Interest expense	=	Carrying value at the end of previous period	*	Semi annual yield
	=	$ 1,052.42	*	4%
	=	$       42.10
Premium amortized	=	Semi annual coupon	-	Interest Expense
	=	$       50.00	-	$    42.10
	=	$         7.90
Unamortized Premium	=	Unamortized Premium at end of previous period	-	Premium amortized
	=	$       52.42	-	$       7.90
	=	$       44.52
Carrying value	=	Carrying value at end of previous period	-	Premium amortized
	=	$ 1,052.42	-	$       7.90
	=	$ 1,044.52