Question

7.

Problem 7: 1. A $1,000 par value ten-year 8% bond has semiannual coupons. The redemption value equals the par value. The bond is purchased at a premium to yield 6% convertible semiannually. What is the amount for amortization of the premium in the tenth coupon? 2. A ten-year 5% bond with semiannual coupons is purchased to yield 6% compounded semiannually. The par value and redemption value are both $1,000. What is the book value of the bond six years after issue of the bond?

Answer 1

fix B2 A В D Е G Н К 2 $ 1,000.00 1 par value premium amortization schedule book value of interest interest premium semiannual interest payment S 40.00 period 3 bond amortization payment expense $ 1,143.24 $ 1,137.54 semiannual interest periods $ 5.54 4 S 34.46 $ 40.00 20 semiannual market interest rate 3% 5 S 34.30 $ 40.00 $ 5.70 $ 5.87 S 6.05 2 6 issue price of bonds $1,148.77 S 34.13 $ 40.00 $1,131.66 $ 1,125.61 7 $33.95 S 40.00 4 $ 6.23 $ 6.42 S 6.61 8 33.77 $40.00 $1,119.38 5 $ 1,112.96 $ 1,106.35 amount for amortization of the premium in 9 S 33.58 $ 40.00 6 $7.22 the tenth coupon 10 33.39 S 40.00 7 $ 6.81 $ 7.01 $ 7.22 $ 1,099.54 $ 1,092.53 11 33.19 $ 40.00 8 12 S 32.99 $ 40.00 $ 32.78 13 $ 40.00 $1,085.30 10 14 15 $1,000.00 discount amortization schedule 2 par value book value of discount interest interest semiannual interest payment $ 25.00 period 16 bond рayment amortization expense $ 2.77 $ 2.85 $ 2.94 $ 3.03 semiannual interest periods $ 27.77 $ 27.85 $ 27.94 $ 28.03 $ 28.12 $ 25.00 $ 25.00 S 25.00 17 $928.38 20 1 18 semiannual market interest rate $931.23 3% 2 19 S 925.61 S 934.17 issue price of bonds $ 937.19 $ 25.00 $ 25.00 $ 25.00 20 4 21 $3.12 $940.31 5 22 book value of the bond six years after issue S 28.21 $3.21 S 943.52 6 $ 964.90 $ 25.00 $ 25.00 $ 25.00 $ 25.00 $ 25.00 $ 25.00 $ 3.31 S 3.40 23 of bond $ 28.31 S 946.83 7 24 $ 28.40 $ 950.23 8 $ 28.51 $ 28.61 25 $3.51 953.74 $ 3.61 $ 3.72 26 957.35 10 $ 28.72 $ 28.83 27 $ 961.07 11 28 $3.83 $ 964.90 12 29

for formulas and calculations, refer to the image below -

fix X B2 1 B C D F G H I K 1 2 premium amortization schedule par value 1000 semiannual interest payment premium amortization book value of bond period interest expense interest payment D2 8% / 2 10 2 semiannual market interest rate6% / 2 3 -SD$3 semiannual interest periods D6*$D$5 EJ4*SD$ 5 4 H4-G4 D6-14 -SD$3 -$D$3 5 2 H5-G5 J4-15 J5*$D$5 -PV(D5,D4,D3,D2) -H6-G6 H7 - G7 6 issue price of bonds EJ5-16 4. 7 =6*SD$5 $D$3 6-17 -$D$3 8 =17*SD$5 H8-G8 J7-18 amount for amortization of the 8*SD$5 -$D$3 6 H9-G9 J8-19 l 13 -H10-G10 J9- 1 10 l 10 - 1 11 premium in the tenth coupon 19*$D$5 EJ10*SD$5 11*$D$ 5 10 $D$3 7 -H11- G11 - $D$3 11 8 -$D$3 =SD$3 -H12-G12 12 EJ11-112 -H13-G13 El12-113 13 10 l12*$D$5 14 15 discount amortization schedule par value 1000 interest payment discount amortization book value of bond semiannual interest payment period interest expense =D15*5% / 2 16 D19*$D$18 El 17*SD$18 -SD$16 -SD$16 -$D$16 =$D$16 -SD$16 G17 - H17 - G18 - H18 semiannual interest periods - 10*2 17 -D19+117 1 J17+1 18 semiannual market interest rate 6 % / 2 18 2 -PV(D18,D17,D16,D15) - J 18 *SD$ 18 J19*SD$ 18 J20*SD$18 19 issue price of bonds 3 G19-H19 J18+119 -G20-H20 -G21 - H21 20 4. J19+120 21 EJ20+121 book value of the bond six years -$D$16 -$D$16 - SD$16 -SD$16 SD$16 -G22-H22 22 121*$D$18 EJ21+122 6 EJ28 J22 $D$18 J23*SD$ 18 23 after issue of bond 7 G23-H23 J22+123 -G24- H24 24 8 23+124 =124 * $D$ 18 J25 $D$18 -G25-H25 25 EJ24+125 EJ25+126 26 10 G26-H26 -SD$16 -SD$16 27 126*$D$18 11 G27-H27 26+127 12 28 27*SD$18 G28-H28 27+128 29

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