Excel Problem Set 2 Bonds, spring 2008

Excel Problem Set 2 Bonds, spring 2008 - Excel Problem Set...

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Excel Problem Set 2, Bonds, Background 8% March 31, 2016 Bond Issue ($100,000,000) Quoted market Yield-to-maturity 7.850% Effective 6-month interst rate 3.925% Coupon 8.000% Semi-annual coupon 4.000% Principle $100,000,000 Amount received (present value) $101,026,077 Reduction to Net bond Interest premium/ Date Payments payable Expense discount 31-Mar-06 $101,026,077 30-Sep-06 $4,000,000 $100,991,351 $3,965,274 $34,726 31-Mar-07 $4,000,000 $100,955,261 $3,963,911 $36,089 30-Sep-07 $4,000,000 $100,917,755 $3,962,494 $37,506 31-Mar-08 $4,000,000 $100,878,777 $3,961,022 $38,978 30-Sep-08 $4,000,000 $100,838,269 $3,959,492 $40,508 31-Mar-09 $4,000,000 $100,796,171 $3,957,902 $42,098 30-Sep-09 $4,000,000 $100,752,421 $3,956,250 $43,750 31-Mar-10 $4,000,000 $100,706,954 $3,954,533 $45,467 30-Sep-10 $4,000,000 $100,659,701 $3,952,748 $47,252 31-Mar-11 $4,000,000 $100,610,595 $3,950,893 $49,107 30-Sep-11 $4,000,000 $100,559,561 $3,948,966 $51,034 31-Mar-12 $4,000,000 $100,506,523 $3,946,963 $53,037 30-Sep-12 $4,000,000 $100,451,404 $3,944,881 $55,119 31-Mar-13 $4,000,000 $100,394,122 $3,942,718 $57,282 30-Sep-13 $4,000,000 $100,334,591 $3,940,469 $59,531 31-Mar-14 $4,000,000 $100,272,724 $3,938,133 $61,867 30-Sep-14 $4,000,000 $100,208,428 $3,935,704 $64,296 31-Mar-15 $4,000,000 $100,141,609 $3,933,181 $66,819 30-Sep-15 $4,000,000 $100,072,167 $3,930,558 $69,442 31-Mar-16 $104,000,000 $100,000,000 $3,927,833 $72,167 $1,026,077 Journal Entries 31-Mar-06 Cash $101,026,077 Bonds payable $100,000,000 Bond premium $1,026,077 30-Sep-06 Interest expense $3,965,274 Bond premium $34,726 Cash $4,000,000 31-Mar-07 Interest expense $3,963,911 Bond premium $36,089 Cash $4,000,000 Background: Corporate and government bonds pay interest semi-annually. They are quoted, for example, as an 8% March 31, 2016, which means the bonds pay a semi-annual interest payment of 4% (half of the 8% quoted coupon) each September 30 and March 31, and mature March 31, 2016. Bonds sell at the present value of their future payments, using a market-determined discount rate. In the issue shown below, $100,000,000 of 8%, 10-year bonds are issued March 31, 2006, when the quoted market yield-to- maturity is 7.85%. The effective semi-annual discount rate equals 7.85% / 2, or 3.925%. Cell C38 shows the calculated NPV of the bond issue (what it would sell for on March 31, 2006, when the effective semi-annual interest rate is 3.925%. The face value is $100,000,000 (principle, or amount to be repaid March 31, 2016) but the company will receive $101,026,077 because it is paying an above-market interest rate of
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Excel Problem Set 2 Bonds, spring 2008 - Excel Problem Set...

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