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PROBLEM #1 FACTS: Number of bonds Par value of each bond Stated interest rate Issue date Due date Call % Called on 1,500 EffeUSE PROBLEM #1 TO ANSWER QUESTIONS 1 THRU 7 BELOW 1.) The value (not par value) of the bond at issue date is what? 2.) At eacProblem #2: Installment Note Preferred Corporation purchases an asset and finances it with a note payable. Information regardUSE PROBLEM #2 TO ANSWER QUESTIONS & THRU 10 BELOW 8.) Calculate the periodic payment on the note payable. 9.) What is the to

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Answer #1

Problem #1

1.) The value of the bond at issue date = (Interest/2*PVAF(Effective Rate of interest/2,2*period of maturity)+Maturity Value*PVF(Effective Rate of Interest/2, 2*Period of Maturity)

= (20/2 * 8.752) + (500 * 0.7812)

= 87.52 + 390.6

= $478.12

(Where 20 = Interest (500*4%),

8.752 = PVAF for 2.5% for 10 times

500 = Assumed redemption at face value only

0.7812= PVF for 2.5% at 10th time

2.) At the interest payment date the cash will neither increased nor decrease it will remain constant over the period i.e. $10. While the amount of interest that would be record will subject to change because of amortization of discount over the interest period.

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