Why Choose Us?
0% AI Guarantee
Human-written only.
24/7 Support
Anytime, anywhere.
Plagiarism Free
100% Original.
Expert Tutors
Masters & PhDs.
100% Confidential
Your privacy matters.
On-Time Delivery
Never miss a deadline.
Three year bonds are issued at face value of $100,000 on Jan
Three year bonds are issued at face value of $100,000 on Jan. 1, 2011, and a stated interest rate of 8%. Calculate the issue price of the bonds assuming a market interest rate of 6%.
1. Calculate the present value
2. Calculate the Bond Amortization Table
Expert Solution
Computation of Present Value using PV Function in Excel:
=-pv(rate,nper,pmt,fv)
Here,
PV = Present Value = ?
Rate = 6%
Nper = 3 years
PMT = $100,000*8% = $8,000
FV = $100,000
Substituting the values in formula:
=-pv(6%,3,8000,100000)
PV or Present Value = $105,346.02
Or we can calculate it as follows:
Issue Price of Bonds = 100,000*8%*( Annuity - Market Rate for Maturity period) + 100,000 ( PV factor Market rate for Maturity Period)
= 100,000*8%*2.67301 + 100,000*0.83962
= 8000*2.67301 + 83,962
= 21,384.08 + 83,962
Issue Price of Bonds = 105,346.08
| 2) Bond Amortization Table: | |||||
| Year | Interest | Interest | Amortization of | Credit Balance in | Book Value of |
| Payment | Expenses | Bond Premium | Bond Premium Account | the Bonds | |
| ($100,000*8%) | (Book Value of Bonds*6%) | (Interest Expenses - Interest Payment) | (100000+Credit Balance) | ||
| 0 | 5346.0 | 105346 | |||
| 1 | 8000 | 6320.76 | -1679.24 | 3666.8 | 103666.8 |
| 2 | 8000 | 6220.01 | -1779.99 | 1886.8 | 101886.8 |
| 3 | 8000 | 6113.21 | -1886.79 | 0.0 | 100000 |
Archived Solution
You have full access to this solution. To save a copy with all formatting and attachments, use the button below.
For ready-to-submit work, please order a fresh solution below.
