Question

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Christmas Anytime issues $750,000 of 7% 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:

2. The market interest rate is 8% and the bonds issue 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. Round your answers to nearest whole dollar.)

Issue price:

Date	Cash Paid	Interest expense	Change in carrying value	Carrying value
01/01/2021
06/30/2021
12/31/2021

Answer 1

Solution:

Chart Values are based on:
n= (10 Years*2)	20	Half years
i= (8%/2)	4.00%	Semi annual
Cash Flow	Table Value	*	Amount	=	Present Value
Principal	0.456387	*	$7,50,000	=	$3,42,290
Interest (Annuity) [$750,000*7%*6/12]	13.590326	*	$26,250	=	$3,56,746
Price of Bonds		$6,99,036

Bond Amortization Schedule
Date	Cash interest	Interest Expense	Change in Carrying Value	Carrying value
01-Jan-21				$6,99,036
30-Jun-21	$26,250	$27,961	$1,711	$7,00,748
31-Dec-21	$26,250	$28,030	$1,780	$7,02,528