Answer:
Date | Explanation | Debit ($) | Credit ($) |
Jan 1, 2013 | Bond investment | $100,000,000 | |
Discount on bond investment | $17,159,086 | ||
Cash | $82,840,914 | ||
June 30, 2013 | Cash | 4,000,000 | |
Discount on bond investment | 142,046 | ||
Interest revenue | 4,142,046 | ||
Dec 31, 2013 | Cash | 4,000,000 | |
Discount on bond investment | 149,148 | ||
Interest revenue | 4,149,148 |
Working Notes:
Year | 20 | =20 |
Coupon rate | 0.08 | =0.08 |
Face value | 100000000 | =$100,000,000 |
PMT | 100000000 x 0.08 | =8,000,000 |
YTM | 0.1 | 10% |
Price of the bonds | =PV(0.1/2,20*2,8000000/2,100000000,0) | $82,840,914 |
Discount on Bonds | =100000000-82,840,914 | $17159086 |
June 30 2013
= Cash 100,000,000 x 0.08/2 = $4,000,000
= Discount on bond investment =$4000000-$4142046
= Interest revenue = 82,840,914 x 0.1/2 = 4,142,046
Dec 31 2013
= Interest revenue = (82840914+142046) x 0.1/2 = 4149148
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