M351 Notes-Day 5 Bonds 2

M351 Notes-Day 5 Bonds 2 - M351 Notes, Class 5: Bonds,...

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M351 Notes, Class 5: Bonds, pages 703-709 A. Using IRR function in Excel to establish the implicit interest rate—see Day 5 spreadsheet. B. Create a liability table for an installment obligation (probably a note)—see Day 5 spreadsheet. C. Create a liability table for a zero coupon note and allocate interest from note periods to calendar periods—see Day 5 spreadsheet. D. Interest bearing note with effective interest rate above the face rate. How is the $9,520 on page 705 calculated? 1. Cash Flows: Large up arrow is receipt of $9,520 cash from lender and small down arrows are $1,000 payments and large down arrow is payment of $10,000 at maturity. Present value of cash outflows: (PVa, n=3, i=12%)($1,000) + (PVsa, n=3, i=12%)($10,000) = (2.4018 x $10,000) + (.7118 x $10,000) = $9,520 1
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A liability table for this note is: Change in Interest Cash Carrying Carrying Date Expense Flow Amount Amount Issue $9,520 End Y1 1,142 1,000 +142 9,662 End Y2 1,159 1,000 +159 9,821 End Y3 1,179 11,000
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M351 Notes-Day 5 Bonds 2 - M351 Notes, Class 5: Bonds,...

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