Autopia City issues a serial bond of $90,000 to be paid over five years, receiving $89,000. The series of annual payments (including both interest and principal repayment, at the end of each year) is as follows: $15,600; $15,700; $23,900; 22,900; 28,700. Using the TIC approach, what is the effective interest rate?
Effective Int rate is the Rate at which PV of Cash inflows are equal to PV of Cash Outflows
Year | CF | PVF @5% | Disc CF | PVf @6% | Disc CF |
0 | $ -89,000.00 | 1.0000 | $ -89,000.00 | 1.0000 | $ -89,000.00 |
1 | $ 15,600.00 | 0.9524 | $ 14,857.14 | 0.9434 | $ 14,716.98 |
2 | $ 15,700.00 | 0.9070 | $ 14,240.36 | 0.8900 | $ 13,972.94 |
3 | $ 23,900.00 | 0.8638 | $ 20,645.72 | 0.8396 | $ 20,066.90 |
4 | $ 22,900.00 | 0.8227 | $ 18,839.89 | 0.7921 | $ 18,138.94 |
5 | $ 28,700.00 | 0.7835 | $ 22,487.20 | 0.7473 | $ 21,446.31 |
NPV | $ 2,070.31 | $ -657.92 |
Effective Rate = Rate at which Least +ve NPV + [ NPV at that Rate / Change in NPV due to 1% inc in DIsc rate ] * 1%
= 5% + [ 2070.31 / 2728.23 ] * 1%
= 5% + 0.76%
= 5.76%
Autopia City issues a serial bond of $90,000 to be paid over five years, receiving $89,000....
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Problem 10-9AB Effective Interest: Amortization of bond premium;
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Required:
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Accounting Question
Help me fill out these charts, please!
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