Homework Answers
present value of bond = Face value / (1+yield)number of payments + interest [1-(1+yield)-number of payments] / yiled
= 1000000 / (1+0.075)3.9*2 + (5%*1000000) [1-(1+0.075)-3.9*2] / 0.075
= 1000000 / (1.075)7.8 + 50000*[1-(1.075)-7.8] / 0.075
= 1000000 / (1.075)7.8 + 50000*[1-1/(1.075)7.8] / 0.075
= 1000000 / 1.757867 + 50000*[1-1/1.757867] / 0.075
= 568871.25 + 287419.17
= 856290.42
a) Cash received on April 1,2018 = $856290.42
b) Interest expense paid for the year = 3/12 months * 10% * 1000000
= $25000
c) Interest expense = discount amortisation + interest payment
= [(1000000-856290.42) *1/7.8 *3 months] + 25000
= 55272.92 + 25000
= 80272.92
d. Carrying value of Bond at Dec 31,2018 = present value of bond at 1 April ,2018 + amortised bond discount
=856290.42 + 55272.92
= 911563.34
Note:- Maturity time period from 1 April 2018 to Dec 31,2021 = 3.9 years
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