Homework Answers
Proceeds from bonds issue = $6,155,351
| Cash Interest paid | Interest expense | D or P Amortization | Closing Net Bond Liability | |
| Opening balance | $ 6,155,351 | |||
| 1 | $ 166,250 | $ 184,661 | $ 18,411 | $ 6,173,762 |
| 2 | $ 166,250 | $ 185,213 | $ 18,963 | $ 6,192,724 |
| 3 | $ 166,250 | $ 185,782 | $ 19,532 | $ 6,212,256 |
| 4 | $ 166,250 | $ 186,368 | $ 20,118 | $ 6,232,374 |
Working
| Bonds issue price is calculated by ADDING the: |
| Discounted face value of bonds payable at market rate of interest, and |
| Discounted Interest payments amount (during the lifetime) at market rate of interest. |
.
| Annual Rate | Applicable rate | Face Value | $ 6,650,000 | ||
| Market Rate | 6.00% | 3.00% | Term (in years) | 10 | |
| Coupon Rate | 5.00% | 2.50% | Total no. of interest payments | 20 |
.
| Calculation of Issue price of Bond | ||||||||
| Bond Face Value | Market Interest rate (applicable for period/term) | |||||||
| PV of | $ 66,50,000 | at | 3.00% | Interest rate for | 20 | term payments | ||
| PV of $1 | 0.55368 | |||||||
| PV of | $ 66,50,000 | = | $ 6,650,000 | x | 0.55368 | = | $ 3,681,972 | A |
| Interest payable per term | at | 2.50% | on | $ 6,650,000 | ||||
| Interest payable per term | $ 166,250 | |||||||
| PVAF of 1$ | for | 3.00% | Interest rate for | 20 | term payments | |||
| PVAF of 1$ | 14.87747 | |||||||
| PV of Interest payments | = | $ 166,250 | x | 14.87747 | = | $ 2,473,379 | B | |
| Bond Value (A+B) | $ 6,155,351 | |||||||
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