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Problem 9-7B Calculate the issue price of a bond and prepare amortization schedules (LO9-5, 9-7) [The following information applies to the questions displayed below.] Christmas Anytime issues $790,000 of 7% bonds, due in 15 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:

Answer :

emaduet2012

Answer:

Answer is given below.

Explanation:

Solution 1:

Chart Values are based on:      

n= (15 Years*2) 30 Half years

i= (7%/2) 3.50% Semi annual

Cash Flow Table Value * Amount = Present Value

Principal 0.356278 * $7,90,000 = $2,81,460

Interest (Annuity) [$790,000*7%*6/12] 18.392045 * $27,650 = $5,08,540

Price of Bonds  $7,90,000

Bond Amortization Schedule

Date Cash interest Interest Expense Chanage in Carrying Value Carrying value

01-Jan-21    $7,90,000

30-Jun-21 $27,650 $27,650 $0 $7,90,000

31-Dec-21 $27,650 $27,650 $0 $7,90,000

Solution 2:

Chart Values are based on:      

n= (15 Years*2) 30 Half years

i= (8%/2) 4.00% Semi annual

Cash Flow Table Value * Amount = Present Value

Principal 0.308319 * $7,90,000 = $2,43,572

Interest (Annuity) [$790,000*7%*6/12] 17.292033 * $27,650 = $4,78,125

Price of Bonds  $7,21,696

Bond Amortization Schedule

Date Cash interest Interest Expense Change in Carrying Value Carrying value

01-Jan-21    $7,21,696

30-Jun-21 $27,650 $28,868 $1,218 $7,22,914

31-Dec-21 $27,650 $28,917 $1,267 $7,24,181

Solution 3:

Chart Values are based on:      

n= (15 Years*2) 30 Half years

i= (6%/2) 3.00% Semi annual

Cash Flow Table Value * Amount = Present Value

Principal 0.411987 * $7,90,000 = $3,25,470

Interest (Annuity) [$790,000*7%*6/12] 19.600441 * $27,650 = $5,41,952

Price of Bonds  $8,67,422

Bond Amortization Schedule

Date Cash interest Interest Expense Change in Carrying Value Carrying value

01-Jan-21    $8,67,422

30-Jun-21 $27,650 $26,023 -$1,627 $8,65,794

31-Dec-21 $27,650 $25,974 -$1,676 $8,64,118

anthougo

1. The issue price of a bond is $790 ($790,000/1,000).

2. First three rows of an Amortization Schedule

Period PV                   PMT Interest FV

1 $790,000.00   $27,650.00   $27,650.00    $790,000.00

2 $790,000.00   $27,650.00   $27,650.00    $790,000.00

Year #1 end

3 $790,000.00   $27,650.00   $27,650.00    $790,000.00

Data and Calculations:

N (# of periods) = 30 (15 years x 2)

I/Y (Interest per year) = 7%

PMT (Periodic Payment) = $27,650 ($790,000 x 7% x 1/2)

FV (Future Value) = $790,000

 

Results

PV (Present Value) = $790,000.00

Sum of all periodic payments = $829,500.00 ($27,650 x 30)

Total Interest = $829,500.00 ($27,650 x 30)

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