Question

Metlock Inc. has issued three types of debt on January 1, 2020, the start of the company’s fiscal year.

(a)		$10 million, 10-year, 13% unsecured bonds, interest payable quarterly. Bonds were priced to yield 11%.
(b)		$27 million par of 10-year, zero-coupon bonds at a price to yield 11% per year.
(c)		$15 million, 10-year, 10% mortgage bonds, interest payable annually to yield 11%.

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. (Round stated and effective rate per period to 2 decimal places, e.g. 10.25%. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.)

				Unsecured Bonds			Zero-Coupon Bonds			Mortgage Bonds
(1)		Maturity value		$			$			$
(2)		Number of interest periods
(3)		Stated rate per period			%			%			%
(4)		Effective rate per period			%			%			%
(5)		Payment amount per period		$			$			$
(6)		Present value		$			$			$

Answer 1

		Unsecured Bonds	Zero-Coupon Bonds	Mortgage Bonds
(1)	Maturity value	$10000000	$27000000	$15000000
(2)	Number of interest periods	40 (10*4)	10	10
(3)	Stated rate per period	3.25% (13%/4)	0%	10%
(4)	Effective rate per period	2.75% (11%/4)	11%	11%
(5)	Payment amount per period	$325000	0	$1500000
(6)	Present value	$11203883	$9508860	$14116545

Payment amount per period

Unsecured Bonds = 10000000*3.25% = 325000

Zero-Coupon Bonds = 27000000*0% = 0

Mortgage Bonds =15000000*10% = 1500000

Present value

Unsecured Bonds

Present Value of Face Value = 10000000*0.33785 = 3378500

Present value of interest payment = 325000*24.07810 = $7825383

Present value = 3378500+7825383 = 11203883

Present value factor of $1 @ n= 40, I = 2.75% is 0.33785

Present value ordinary annuity of $1 @ n= 40, I = 2.75% is 24.07810

Zero-Coupon Bonds

Present Value of Face Value = 27000000*0.35218 = 9508860

Present value factor of $1 @ n= 10, I = 11% is 0.35218

Mortgage Bonds

Present Value of Face Value = 15000000*0.35218 = 5282700

Present value of interest payment = 1500000*5.88923 = $8833845

Present value = 5282700+8833845 = 14116545

Present value factor of $1 @ n= 10, I = 11% is 0.35218

Present value ordinary annuity of $1 @ n= 10, I = 11% is 5.88923