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[The following information applies to the questions displayed below.] Christmas Anytime issues $750,000 of 7% bonds,...
[The following information applies to the questions displayed below.]
Christmas Anytime issues $750,000 of 7% bonds, due in 10 years, with interest payable semiannually on June 30 and December 31 each year.
Calculate the issue price of a bond and complete the first three rows of an amortization schedule when:
Required:
1. The market interest rate is 7% and the bonds issue at face amount. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Do not round interest rate factors. Round your answers to nearest whole dollar.)
Issue Value:
| Date | Cash Paid | Interest Expense | Change in carrying value | Carrying value |
| 01/01/2021 | ||||
| 06/30/2021 | ||||
| 12/31/2021 |
Solutions
Expert Solution
| CALCULATION OF PRESENT VALUE OF BOND | ||||
| Step 1 : Calculation of Semi Annual Coupon Payments | ||||
| Par value of the bond issued is = | $750,000 | |||
| Annual Coupon % | 7.00% | |||
| Annual Coupon Amount | $52,500 | |||
| Half Yearly Coupon Amount | $26,250 | |||
| Market rate of interest or Yield to Maturity or Required Return = 7 % | ||||
| Half Yearly market rate of interet = 7% / 2 - | 3.50% | |||
| PVF = 1 / Discount rate = 1/ 1.035 | ||||
| Result of above will again divide by 1.035 , repeat this lat period | ||||
| Period | Interest | Amount (In Million) | PVF of $ 1 @ 3.5% | PresentValue |
| 1 | Interest | $26,250.00 | 0.9662 | $25,362.32 |
| 2 | Interest | $26,250.00 | 0.9335 | $24,504.66 |
| 3 | Interest | $26,250.00 | 0.9019 | $23,676.00 |
| 4 | Interest | $26,250.00 | 0.8714 | $22,875.36 |
| 5 | Interest | $26,250.00 | 0.8420 | $22,101.80 |
| 6 | Interest | $26,250.00 | 0.8135 | $21,354.39 |
| 7 | Interest | $26,250.00 | 0.7860 | $20,632.26 |
| 8 | Interest | $26,250.00 | 0.7594 | $19,934.55 |
| 9 | Interest | $26,250.00 | 0.7337 | $19,260.44 |
| 10 | Interest | $26,250.00 | 0.7089 | $18,609.12 |
| 11 | Interest | $26,250.00 | 0.6849 | $17,979.82 |
| 12 | Interest | $26,250.00 | 0.6618 | $17,371.81 |
| 13 | Interest | $26,250.00 | 0.6394 | $16,784.36 |
| 14 | Interest | $26,250.00 | 0.6178 | $16,216.77 |
| 15 | Interest | $26,250.00 | 0.5969 | $15,668.38 |
| 16 | Interest | $26,250.00 | 0.5767 | $15,138.53 |
| 17 | Interest | $26,250.00 | 0.5572 | $14,626.60 |
| 18 | Interest | $26,250.00 | 0.5384 | $14,131.98 |
| 19 | Interest | $26,250.00 | 0.5202 | $13,654.09 |
| 20 | Interest | $26,250.00 | 0.5026 | $13,192.35 |
| 20 | Bond Principal Value | $750,000.00 | 0.5026 | $376,924.41 |
| Total | $750,000.00 | |||
| Current Bonds Price = | $750,000.00 | |||
| AMORTIZATION SCHEDULE | ||||
| Date | Cash Paid | Interest Expenses | Changes in Carrying value | Carrying Value |
| 01/01/2021 | $750,000 | |||
| 06/30/2021 | 26250 | 26250 | 0 | $750,000 |
| 12/31/2021 | 26250 | 26250 | 0 | $750,000 |
ekkarill92 answered 2 years agoRelated Solutions
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