Homework Answers
| a] | PV of the face value of the bonds = 30000000*0.58543 = | $ 1,75,62,900 | ||||
| PV of semi-annual interest = 1950000*7.53763 = | $ 1,46,98,379 | |||||
| Cash proceeds from the bond = | $ 3,22,61,279 | |||||
| b] | Premium to be amortized = 32261279-30000000 = | $ 22,61,279 | ||||
| AMORTIZATION TABLE: | ||||||
| HALF YEAR | BEG BAL | INTEREST EXPENSE | INTEREST PAID | AMORTIZATION OF PREMIUM | END BAL | |
| 1 | $ 3,22,61,279 | $ 17,74,370 | $ 19,50,000 | $ 1,75,630 | $ 3,20,85,649 | |
| 2 | $ 3,20,85,649 | $ 17,64,711 | $ 19,50,000 | $ 1,85,289 | $ 3,19,00,360 | |
| 3 | $ 3,19,00,360 | $ 17,54,520 | $ 19,50,000 | $ 1,95,480 | $ 3,17,04,880 | |
| 4 | $ 3,17,04,880 | $ 17,43,768 | $ 19,50,000 | $ 2,06,232 | $ 3,14,98,648 | |
| 5 | $ 3,14,98,648 | $ 17,32,426 | $ 19,50,000 | $ 2,17,574 | $ 3,12,81,074 | |
| 6 | $ 3,12,81,074 | $ 17,20,459 | $ 19,50,000 | $ 2,29,541 | $ 3,10,51,533 | |
| 7 | $ 3,10,51,533 | $ 17,07,834 | $ 19,50,000 | $ 2,42,166 | $ 3,08,09,367 | |
| 8 | $ 3,08,09,367 | $ 16,94,515 | $ 19,50,000 | $ 2,55,485 | $ 3,05,53,882 | |
| 9 | $ 3,05,53,882 | $ 16,80,464 | $ 19,50,000 | $ 2,69,536 | $ 3,02,84,346 | |
| 10 | $ 3,02,84,346 | $ 16,65,639 | $ 19,50,000 | $ 2,84,361 | $ 2,99,99,985 | |
| c] | Amount of premium amortized for the second semi-annual interest payment = | $ 1,85,289 | ||||
| d] | Interest expense for the first year = | $ 35,39,081 |
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