Question

Headland Inc. has issued three types of debt on January 1, 2017, the start of the company’s fiscal year. (a) $11 million, 10-year, 13% unsecured bonds, interest payable quarterly. Bonds were priced to yield 10%. (b) $27 million par of 10-year, zero-coupon bonds at a price to yield 10% per year. (c) $17 million, 10-year, 8% mortgage bonds, interest payable annually to yield 10%. 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.

Answer 1

		Unsecured Bonds	Working	Zero - coupon Bonds	Working	Mortgage Bonds	Working
1	Maturity value	$   11,000,000.00		$        27,000,000.00		$       17,000,000.00
2	Number of interest periods	40		10		10
3	Stated rate per period	3.25%	=13%/4	0		8%
4	Effective rate per period	2.50%	=10%/4	10%		10%
5	Payment amount per period	$        357,500.00	(11M x 3.25%)	0		$         1,360,000.00	(17M x 8%)
6	Present value	9217295.21	(357500 x 25.1028)+(11000000*0.3724)	$   10,408,500.0000	(27000000 x 0.3855)	$ 14,910,156.0000	(1530000 x 6.1446) + (17000000 x 0.3855)