Consolidated Enterprises issues €1 million face value, five-year bonds with a coupon rate of 1 percent

Accounting Oct 09, 2020

Consolidated Enterprises issues €1 million face value, five-year bonds with a coupon rate of 1 percent. At the time of issuance, the market interest rate is 2.0 percent. Using the effective interest rate method of amortisation, calculate the carrying value after one year?

Expert Solution

Computation of Carrying Value after 1 year using PV Function in Excel:

=-pv(rate,nper,pmt,fv)

Here,

PV = Present Value or Carrying Value after 1 year = ?

Rate = Market Interest Rate = 2%

Nper = Number of Years to Maturity = 5 years - 1 year = 4 years

PMT = Periodic Coupon Payment = 1,000,000*1% = 10,000

FV = Face Value = 1,000,000

Substituting the values in formula:

=-pv(2%,4,10000,1000000)

PV or Present Value or Carrying Value after 1 year = 961,922.71 or 0.96 million

So, carrying value after one year is €961,922.71 or €0.96 million.

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