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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

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