Homework SourseMonty Inc has issued three types of debt on January 1 2017 t
Monty Inc. has issued three types of debt on January 1, 2017, the start of the company’s fiscal year.
Prepare a schedule that identifies the following items for each bond: (1) maturity value, (2) number of interest periods over life of bond, (3) stated rate per each interest period, (4) effective-interest rate per each interest period, (5) payment amount per period, and (6) present value of bonds at date of issue.
| (a) | $12 million, 10-year, 15% unsecured bonds, interest payable quarterly. Bonds were priced to yield 10%. | |
| (b) | $30 million par of 10-year, zero-coupon bonds at a price to yield 10% per year. | |
| (c) | $20 million, 10-year, 9% mortgage bonds, interest payable annually to yield 10%. |
Solution
Unsecured Bonds 1. Maturity Value 12000000 2. No.of Interest periods 10*4= 40 3. Stated rate per period 15%/4= 3.75% 4. Effective rate per period 10%/4= 2.50% 5. Payment amount per period 12000000*15%/4= 450000 6. Present Value (450000*(1-1.025^-40)/0.025)+(12000000/1.025^40)= 15765416 Zero Coupon Bonds 1. Maturity Value 30000000 2. No.of Interest periods No coupon payments 0 3. Stated rate per period Not applicable 4. Effective rate per period 10% 5. Payment amount per period 0 6. Present Value 30000000/1.1^10= 11566299 Mortgage Bonds 1. Maturity Value 20000000 2. No.of Interest periods 10*12= 120 3. Stated rate per period 9%/12= 0.75% 4. Effective rate per period 10%12= 0.833% 5. Payment amount per period 20000000*9%/12= 150000 6. Present Value (150000*(1-1.00833^-120)/0.00833)+(20000000/1.00833^120)= 18743648 SUMMARY Unsecured Bonds Zero Coupon Bonds Mortgage Bonds 1. Maturity Value 12000000 30000000 20000000 2. No.of Interest periods 40 0 120 3. Stated rate per period 0.0375 0.0075 4. Effective rate per period 0.025 0.1 0.008333 5. Payment amount per period 450000 0 150000 6. Present Value 15765416 11566299 18743648
