Homework SourseCompany sold bonds at the beginning of the year on June 1201
Company sold bonds at the beginning of the year on June 1,2014. The bond has the face value of $2,000 and payment of $50 , each due on December 1 and June 1. The contract or stated rate =5%. The bond sold on the market on June 1.2014 to yield investors a 6% annual rate of return. New bond -5years. 6%yield. Coupon-5%. (Only discount not premium). Prepare an amortization table for the bond.
Solution
semiannual yield = 6*6/12 =3%
semiannual months =5*2 =10
Issue price = [PVA 3%,10*Interest ]+[PVF 3%,10*Face value]
=[8.53020*50]+ [.74409*000]
= 426.51+ 1488.18
= 1914.69
Discount on bond = 2000-1914.69 = 85.31
Amortisation schedule
| Number of period | Interest paid [B] | Interest expense[A =Carrying value *.03] ] | Discount amortised [A-B] | Carrying value at end | ||
| 1 | 50 | 1914.69*.03= 57.44 | 7.44 | 1914.69+7.44= 1922.13 | ||
| 2 | 50 | 57.66 | 7.66 | 1922.13+7.66= 1929.79 | ||
| 3 | 50 | 57.89 | 7.89 | 1929.79+7.89= 1937.68 | ||
| 4 | 50 | 58.13 | 8.13 | 1937.68+8.13= 1945.81 | ||
| 5 | 50 | 58.37 | 8.37 | 1954.18 | ||
| 6 | 50 | 58.63 | 8.63 | 1962.81 | ||
| 7 | 50 | 58.88 | 8.88 | 1971.69 | ||
| 8 | 50 | 59.15 | 9.15 | 1980.84 | ||
| 9 | 50 | 59.43 | 9.43 | 1990.27 | ||
| 10 | 50 | 59.71 | 9.71 | 1999.98 [rounded to 2000] |
