Question

Exercise 14-2 Kingbird Inc, has issued three types of debt on January 1, 2020, the start of the company's fiscal year: 1. $8 million, 11-year, 15% unsecured bonds, with interest payable quarterly, priced to yield 13% 2. $2.5 million par of 12-year, zero-coupon bonds at a price to yield 13% per year 3. $17 million, 12-year, 12% mortgage bonds, with interest payable annually to yield 13% Prepare a schedule that identifies the following items for each bond: (For calculation purposes, use 5 decimal places as displayed in the factor table provided round percentages to 2 decimal places, e.g. 15.12% and all other answers to O decimal places, e.g. 5,275. Do not leave any answer field blank. Enter o for amounts.) Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1. Unsecured Bonds Zero- Coupon Bonds Mortgage Bonds (a) (b) Maturity value Number of interest periods over the life of the bond Stated rate for each interest period (d) Effective interest rate for each interest period (e) Payment amount per period (1) Present value of the bonds at the date of issue LINK TO TEXT LINK TO TEXT LINK TO VIDEO

Answer 1

							Unsecured bonds	Zero coupon bonds	Mortgage bonds
	(a)	Maturity value					8000000	2500000	17000000
	(b)	Number of interest periods over the life of the bond					44	0	12
							(11*4)		(12*1)
	c)	Stated rate for each interest period					3.75	0%	12%
							(15/4)
	(d)	Effective interest rate for each interest period					3.25%	13%	13%
							(13/4)
	e)	Payment amount per period					300000	0	2040000
							(8000000*3.75%)		(17000000*12%)
	(f)	Present value of bonds at the date of issue				(Note:1)	8929501	576775	15994076
	Note:1
	Present value of bonds at the date of issue=Present value of payment amount per period+Present value of maturity value
	Unsecured bonds:
	Discount factor=3.25%
	Present value of payment amount per period=Payment amount per period*Discount factor at 3.25% for 44 years=300000*23.23647=$ 6970941
	Present value of maturity value=Maturity value*Discount factor at 3.25% for 44th year=8000000*0.24482=$ 1958560
	Present value of bonds at the date of issue=6970941+1958560=$ 8929501
	Zero coupon bonds:
	Discount factor=13%
	Present value of payment amount per period=0 (Since payment per period is 0)
	Present value of maturity value=Maturity value*Discount factor at 13% for 12th year=2500000*0.23071=$ 576775
	Present value of bonds at the date of issue=0+576775=$ 576775
	Mortgage bonds:
	Discount factor=13%
	Present value of payment amount per period=Payment amount per period*Discount factor at 13% for 12 years=2040000*5.91765=$ 12072006
	Present value of maturity value=Maturity value*Discount factor at 3.25% for 44th year=17000000*0.23071=$ 3922070
	Present value of bonds at the date of issue=12072006+3922070=$ 15994076