Question

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

(a)		$11 million, 10-year, 14% unsecured bonds, interest payable quarterly. Bonds were priced to yield 12%.
(b)		$25 million par of 10-year, zero-coupon bonds at a price to yield 12% per year.
(c)		$18 million, 10-year, 10% mortgage bonds, interest payable annually to yield 12%.

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	43551856.93	25000000	46687364
2. No. of Interest Period	40	NIL	10
3. Stated Rate Per Period	3.5%	0	10%
4. Effective Rate Per Period	12%	12%	12%
5. Payment Amount Per Period	385000	0	1800000
6. Present Value	12440893	8049331	15965919
1. Maturity Value = Par Value ( 1+r)^n
Hence, r = rate of interest per period.
	Unsecured Bonds	Zero-Coupon Bonds	Mortgage Bonds
1. Maturity Value	11000000 X ( 1+3.5%)^40	25000000 X(1+0)^0	18000000 X (1+10%)^10
2. Interest Period determien the accrual of interest either monthly, quarterly, semi annually or annually.
Hence, check the accrual period X No. of Years
	Unsecured Bonds	Zero-Coupon Bonds	Mortgage Bonds
2. No. of Interest Period	4 Times in a Years X 10 Years	NIL	1 time in a Year X 10 Years
3. Stated Rate , Rate is always shown at Annual basis.
	Unsecured Bonds	Zero-Coupon Bonds	Mortgage Bonds
3. Satted Rate	as Quarterly rest, hence 14 % / 4 = 3.5 %	0	10 % / 1 = 10 %
4. Effective Rate, the NPV of the inflow and outflow is NIL
as already stated in Question at 12% in all three cases
5. Payment Amount , it is payment accrual of interest
	Unsecured Bonds	Zero-Coupon Bonds	Mortgage Bonds
5. Payment Amount	11000000 X 3.5%	0	18000000 X 10%
6. Present Value, PV is the Present valueof All flows at effective rate of Interest
	Unsecured Bonds	Zero-Coupon Bonds	Mortgage Bonds
6. Present Value	11000000 X 3.5% (3%, 40 period) + 11000000 X (12% , 10th)	0+ 25000000 X (12%, 10th Year)	18000000 X 10% (12%, 10 Years) +18000000 (12%, 10Th Year)