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Explain Evaluation of bond receipts at various interest rates

Bond Problem:

On January 1, 2008, the Junco Company issued $500,000 face amount 10 year, 10% stated rate bond when the market interest rates were 11%. The bonds pay interest semi-annually each June 30th and December 31st and mature on December 31, 2018.

Required:

a.      What is the effective interest rate?

b.      Using the present value tables contained on the following pages, calculate the proceeds (issue price) of the Junco Company bonds on January 1, 2008 assuming that the bonds were sold to provide a market rate of return to the investor.

c.       What will be the cash interest payment made on June 30th, 2008

d.      Using the effect interest rate method, determine the interest that will be recognized on the income statement on June 30th, 2008.

e.      What will be the new carrying value for the bond on June 30th, 2008?

Present Value of S1 to be paid in Future

Years

3.0%

3.5%

4.0%

4.5%

1

$0.970874

$0.966184

$0.961538

$0.956938

2

$0.942596

$0.933511

$0.924556

$0.915730

3

$0.915142

$0.901943

$0.888996

$0.876297

4

$0.888487

$0.871442

$0.854804

$0.828561

5

$0.862609

$0.841973

$0.821927

$0.802451

6

$0.837484

$0.813501

$0.790315

$0.767896

7

$0.813092

$0.785991

$0.759918

$0.734828

8

$0.789409

$0.759412

$0.730690

$0.703185

9

$0.766417

$0.733731

$0.702587

$0.672904

10

$0.744094

$0.708919

$0.675564

$0643928

11

$0.722421

$0.684946

$0.649581

$0.616199

12

$0.701380

$0.661783

$0.624597

$0.589664

13

$0.680951

$0.639404

$0.600574

$0.564272

14

$0.661118

$0.617782

$0.577475

$0.539973

15

$0.641862

$0.596891

$0.555265

$0.516720

16

$0.623167

$0.576706

$0.533908

$0.494469

17

$0.605016

$0.557204

$0.513373

$0.473176

18

$0.587395

$0.538361

$0.493628

$0.452800

19

$0.570286

$0.520156

$0.474642

$0.433302

20

$0.553676

$0.502566

$0.456387

$0.414643

21

$0.537549

$0.485571

$0.438834

$0.396787

22

$0.521893

$0.469151

$0.421955

$0.379701

23

$0.506692

$0.453286

$0.405726

$0.363350

24

$0.491934

$0.437957

$0.390121

$0.347703

25

$0.477606

$0.423147

$0.375117

$0.332731

 

Years

5.0%

5.5%

6.0%

6.5%

1

$0.952381

$0.947867

$0.943396

$0.938967

2

$0.907029

$0.898452

$0.889996

$0.881659

3

$0.863838

$0.851614

$0.839619

$0.827849

4

$0.822702

$0.807217

$0.792094

$0.777323

5

$0.783526

$0.765134

$0.747258

$0.729881

6

$0.746215

$0.725246

$0.704961

$0.685334

7

$0.710681

$0.687437

$0.665057

$0.643506

8

$0.676839

$0.651599

$0.627412

$0.604231

9

$0.644609

$0.617629

$0.591898

$0.567353

10

$0.613913

$0.585431

$0.558395

$0.532726

11

$0.584679

$0.554911

$0.526788

$0.500212

12

$0.556837

$0.525982

$0.496969

$0.469683

13

$0.530321

$0.498561

$0.468839

$0.441017

14

$0.505068

$0.472569

$0.442301

$0.414100

15

$0.481017

$0.447933

$0.417265

$0.388827

16

$0.458112

$0.424581

$0.393646

$0.365095

17

$0.436297

$0.402447

$0.371364

$0.342813

18

$0.415521

$0.381466

$0.350344

$0.321890

19

$0.395734

$0.361579

$0.330513

$0.302244

20

$0.376889

$0.342729

$0.311805

$0.283797

21

$0.358942

$0.324862

$0.294155

$0.266476

22

$0.341850

$0.307926

$0.277505

$0.250212

23

$0.325571

$0.291873

$0.261797

$0.234941

24

$0.310068

$0.276657

$0.246979

$0.220602

25

$0.295303

$0.262234

$0.232999

$0.207138

 

Years

15.0%

1

$0.869565

2

$0.756144

3

$0.657516

4

$0.571753

5

$0.497177

6

$0.432328

7

$0.375937

8

$0.326902

9

$0.284262

10

$0.247185

11

$0.214943

12

$0.186907

13

$0.162528

14

$0.141329

15

$0.122894

16

$0.106865

17

$0.092926

18

$0.080805

19

$0.070265

20

$0.061100

21

$0.053131

22

$0.046201

23

$0.040174

24

$0.034934

25

$0.030378

Present Value of an Annuity

To Be Paid in the Future

PRESENT WORTH OF ONE DOLLAR PER PERIOD

PAYABLE AT END OF EACH PERIOD

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M9164981

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