Question

Sheridan Inc. has issued three types of debt on January 1, 2020, the start of the company’s fiscal year.

(a)		$10 million, 11-year, 14% unsecured bonds, interest payable quarterly. Bonds were priced to yield 10%.
(b)		$27 million par of 11-year, zero-coupon bonds at a price to yield 10% per year.
(c)		$20 million, 11-year, 9% mortgage bonds, interest payable annually to yield 10%.

Prepare a schedule that identifies the following items for each bond: (1) maturity value, (2) number of interest periods over life of bond, (3) stated rate per each interest period, (4) effective-interest rate per each interest period, (5) payment amount per period, and (6) present value of bonds at date of issue. (Round stated and effective rate per period to 2 decimal places, e.g. 10.25%. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.)

				Unsecured Bonds			Zero-Coupon Bonds			Mortgage Bonds
(1)		Maturity value		$			$			$
(2)		Number of interest periods
(3)		Stated rate per period			%			%			%
(4)		Effective rate per period			%			%			%
(5)		Payment amount per period		$			$			$
(6)		Present value		$			$			$

Answer 1

				Unsecured Bonds			Zero-Coupon Bonds			Mortgage Bonds
(1)		Maturity value		$10000000			$27000000			$20000000
(2)		Number of interest periods		44			11			11
(3)		Stated rate per period		3.5	%		0	%		9	%
(4)		Effective rate per period		2.5	%		10	%		10	%
(5)		Payment amount per period		$350000			$0			$1800000
(6)		Present value		$12650348			$9463230			$18700908

Unsecured Bonds:-

Stated rate per period = 14%/4 = 3.5%

Effective rate per period = 10%/4 = 2.5%

Payment amount per period = $10000000 * 14% * 3/12 = $350000

Present value = ($350000 * PVAF 2.5%,44) + ($10000000 * PVIF 2.5%,44)

                = ($350000 * 26.50385) + ($10000000 * 0.33740) = $12650348

Zero Coupon Bond :-

Present value = ($27000000 * PVIF 10%,11)

                 = ($27000000 * 0.35049) = $9463230

Mortgage Bonds:-

Payment amount per period = $20000000 * 9% = $1800000

Present value = ($1800000 * PVAF 10%,11) + ($20000000 * PVIF 10%,11)

              = ($1800000 * 6.49506) + ($20000000 * 0.35049) = $18700908