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ABC Crp. issued $8,000,000 of 8% debentures on January 1,2018. The bonds pay interest semiannually on...

ABC Crp. issued $8,000,000 of 8% debentures on January 1,2018. The bonds pay interest semiannually on July 1 and January 1. The maturity date on these bonds is January 1, 2026. The firm uses the effective interest method of amortizing discounts and premiums. The bonds were sold to yield an effective interest rate of 10%.

Required: Compute the present Value of bonds and amortization table
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Answer #1

Face Value of Bonds = $8,000,000

Annual Coupon Rate = 8.00%
Semiannual Coupon Rate = 4.00%
Semiannual Coupon = 4.00% * $8,000,000
Semiannual Coupon = $320,000

Time to Maturity = 8 years
Semiannual Period = 16

Annual Interest Rate = 10.00%
Semiannual Interest Rate = 5.00%

Issue Value of Bonds = $320,000 * PVA of $1 (5.00%, 16) + $8,000,000 * PV of $1 (5.00%, 16)
Issue Value of Bonds = $320,000 * 10.837770 + $8,000,000 * 0.458112
Issue Value of Bonds = $7,132,982

Date Cash Paid Jan. 01, 2018 July 01, 2018 $ Jan. 01, 2019 $ July 01, 2019 $ Jan. 01, 2020 $ July 01, 2020 $ Jan. 01, 2021 $

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