Question

Information Related to Various Bond Issues) Karen Austin Inc. has issued three types of debt on January 1, 2020, the start of the company's fiscal year.

a.   $10 million, 10-year, 15% unsecured bonds, interest payable quarterly. Bonds were priced to yield 12%.

b.   $25 million par of 10-year, zero-coupon bonds at a price to yield 12% per year.

c.   $20 million, 10-year, 10% mortgage bonds, interest payable annually to yield 12%.

Instructions

Prepare a schedule that identifies the following items for each bond: (1) maturity value, (2) number of interest periods over life of bond, (3) stated rate per each interest period, (4) effective-interest rate per each interest period, (5) payment amount per period and (6) present value of bonds at date of issue.

The question that I want to change: a) revised that the interest is payable quarterly; b and c the calculation for the mortgage payable is the same as for a bond payable

Answer 1

	A	B	C	D
1		Unsecured bonds	Zero-coupon bonds	Mortgage bonds
2	Maturity value	10,000,000	25,000,000	20,000,000
3	Number of interest periods over life of bond	40	10	10
4	Stated rate per each interest period	0.0375	0	10%
5	Effective interest rate per each interest period	0.03	12%	12%
6	Payment amount per period	375000	0	2000000
7	Present value of bonds at date of issue	$11,733,607.90	$8,049,330.91	$17,739,910.79

Above figures have been calculated in the following manner:

	Unsecured bonds	Zero-coupon bonds	Mortgage bonds
Maturity value	10000000	25000000	20000000
Number of interest periods over life of bond	=10*4	10	10
Stated rate per each interest period	=15%/4	0	0.1
Effective interest rate per each interest period	=12%/4	0.12	0.12
Payment amount per period	=B2*B4	0	=D2*D4
Present value of bonds at date of issue	=PV(B5,B3,-B6,0,0)+PV(B5,B3,0,-B2,0)	=PV(C5,C3,0,-C2,0)	=PV(D5,D3,-D6,0,0)+PV(D5,D3,0,-D2,0)