Question

Judy Carpenter, Inc. has issued three types of debt on January 1, Year 7, the start of the company’s fiscal year, as follows: (1) $10 million, 10-year, 15% unsecured bonds, interest payable quarterly and these bonds were priced to yield 12%; (2) $25 million par of 10-year, zero-coupon bonds at a price to yield 12% per year; and (3) $20 million, 10-year, 10% mortgage bonds, interest payable annually to yield 12%.

Instructions:

Complete the schedule below for the three debt issues outlined above.

	$10 million bonds	$25 million bonds	$20 million bonds
1. Maturity value
2. Number of interest periods over life of bonds
3. Stated rate of interest per interest period
4. Effective-interest rate per interest period
5. Payment amount per period
6. Present value of the bonds on the date of issuance

Answer 1