Homework Answers
1) $204910 debit to the cash of bond proceed
Bond valuation is the determination of the fair price of a bond
Bond value is calculated by following formula
BV = Coupon Interest × PVAF ( YTM ,Yr) + Redemption ( PVF ( YTM, Yr)
YTM ie Yield to maturity = 6% , life of bond = 10year
Coupon Interest = Face value × Interest Rate
=189000×7%
Coupon Interest=13230
Bond Value ie Company issue price ( Market value of Bond) = 13230×7.36009 + 189000×0.55839
=99373.9907+ 105535.71
=204909.7 or 204910
2. Book value of bond sold on 1, April is $46250
Under straight line amortisation the discount or premium on bond are amortise over the life of bond and get added to book value so that on maturity book value will be equal to it face value .
As provided Face value of bond is $100000
Which is issued at $92000 lower than face value hence issued at discount of (100000-92000) = 8000
Amortisation over life of bond =8000/4 = 2000 every year
On sell of 50000 value of bond
Book value of Bond Sold = (Issue value + discount amortisation for 3 month)
= (92000+ 2000×3/12) ×50%
=(92000+500)×50%....
=46250
multiply by 50% because 50% held value of bond are retire 5000/100000
3. Credit to cash will be by $19400
Cash call will be the value at which bond are retired ie $95
Cash call is the amount realised on retirement of bond .
Credit to cash will be $20000×97/100 (FV)
=19400
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