Question

30, 2036 (15 years). The market rate of interest for similar bond issues was 5% (2.5% semiannual rate). Interest is paid semiannually (2.0%) on June 30 and December 31, beginning on December 31, 2021. (FV of $1. PV of $1, FVA of $1, PVA of $1. FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Determine the price of the bonds on June 30, 2021. 2. Calculate the interest expense Singleton reports in 2021 for these bonds using the effective interest method. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Determine the price of the bonds on June 30, 2021. (Enter your answers in whole dollars. Round percentage answers to one decimal place. Round your final answers to nearest whole dollar amount.) Table values are based on: Cash Flow Amount Present Value Interest Principal Price of bonds - Required Required 2 >

Answer 1

Ans:

Ans:

1
Table Values are based on
n=30
i=2.5%
Cash flow	Amount	Present value
Interest	$      2,000,000.00	$        41,860,580
Principal	$ 100,000,000.00	$        47,674,000
Price of bonds		$        89,534,580

Calculations:
Issuance price of bond is the present value of future cash flows.
Present value of coupon		$        41,860,580
Present value of par value		$        47,674,000
Present value of Bonds Payable		$        89,534,580
Expected Cash Proceeds to be received from Issuance of Bonds		$        89,534,580
Workings:
Coupon Payment	=	Par Value	*	Semi annual coupon rate
	=	$ 100,000,000.00	*	2.00%
	=	$     2,000,000.00
Present value of annuity of 1	=	(1-(1+i)^-n)/i		Where,
	=	(1-(1+ 0.025)^- 30)/ 0.025		i	=	2.50%
	=	20.93029		n	=	30
Present value of 1	=	(1+i)^-n
	=	(1+ 0.025)^- 30
	=	0.47674
Present value of coupon	=	Coupon Payment	*	Present value of annuity of 1
	=	$     2,000,000.00	*	20.93029
	=	$        41,860,580
Present value of par value	=	Par Value	*	Present value of 1
	=	$ 100,000,000.00	*	0.47674
	=	$        47,674,000

Effective Interest Amortization Table
Formula Used	(100,000,000*4%) / 2	Last year’s Carrying value of bond* Market Rate of Interest (5%)	Cash Paid -Interest Expense	Last year's Carrying value of Bond - current year's Premium amortized
Period End	Cash Interest Paid	Bond Interest Expense	Premium Amortisation	Carrying Value
06/30/2021				$          89,534,580
12/31/2021	$            2,000,000.00	$           2,238,365.00	$    238,365.00	$    89,772,945.00