Question

Coney Island Entertainment issues $1,500,000 of 6% bonds, due in 10 years, with interest payable semiannually on June 30 and December 31 each year.

   

Calculate the issue price of a bond and complete the first three rows of an amortization schedule when:

Required:

1. The market interest rate is 6% and the bonds issue at face amount. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Do not round interest rate factors.)

2. The market interest rate is 7% and the bonds issued at a discount. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Do not round interest rate factors.)

3. The market interest rate is 5% and the bonds issued at a premium. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Do not round interest rate factors.)

Answer 1

Solution 1:

Chart Values are based on:
n= (10 Years*2)	20	Half years
i= (6%/2)	3.00%	Semi annual
Cash Flow	Table Value	*	Amount	=	Present Value
Principal	0.553676	*	$15,00,000	=	$8,30,514
Interest (Annuity) [$1,500,000*6%*6/12]	14.877475	*	$45,000	=	$6,69,486
Price of Bonds					$15,00,000

Bond Amortization Schedule
Date	Cash interest	Interest Expense	Change in Carrying Value	Carrying value
01-Jan-21				$15,00,000
30-Jun-21	$45,000	$45,000	$0	$15,00,000
31-Dec-21	$45,000	$45,000	$0	$15,00,000

Solution 2:

Chart Values are based on:
n= (10 Years*2)	20	Half years
i= (7%/2)	3.50%	Semi annual
Cash Flow	Table Value	*	Amount	=	Present Value
Principal	0.502566	*	$15,00,000	=	$7,53,849
Interest (Annuity) [$1,500,000*6%*6/12]	14.212403	*	$45,000	=	$6,39,558
Price of Bonds					$13,93,407

Bond Amortization Schedule
Date	Cash interest	Interest Expense	Change in Carrying Value	Carrying value
01-Jan-21				$13,93,407
30-Jun-21	$45,000	$48,769	$3,769	$13,97,176
31-Dec-21	$45,000	$48,901	$3,901	$14,01,077

Solution 3:

Chart Values are based on:
n= (10 Years*2)	20	Half years
i= (5%/2)	2.50%	Semi annual
Cash Flow	Table Value	*	Amount	=	Present Value
Principal	0.610271	*	$15,00,000	=	$9,15,406
Interest (Annuity) [$1,500,000*6%*6/12]	15.589162	*	$45,000	=	$7,01,512
Price of Bonds					$16,16,919

Bond Amortization Schedule
Date	Cash interest	Interest Expense	Change in Carrying Value	Carrying value
01-Jan-21				$16,16,919
30-Jun-21	$45,000	$40,423	-$4,577	$16,12,342
31-Dec-21	$45,000	$40,309	-$4,691	$16,07,650