practice prob bonds solution

# practice prob bonds solution - © Mikhail Pevzner and...

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Unformatted text preview: © Mikhail Pevzner and George Mason University Bonds’ practice problems-solutions On December 1, 2006, MBP issued 50,000 \$100 par value bonds that pay interest semi-annually . Bonds mature in 5 years and have a stated annual coupon rate of 12%. Assume that annual market interest rate is: a) 8% b) 12% c) 16% Required: For each interest rate (a)-(c), determine: 1) Were bonds issued at discount or premium? a)-premium b) par c) discount 2) Bond price at issuance A) Par Value \$5,000,000.00 Number of periods 10 Coupon rate 6% Coupon payment \$ 300,000.00 Market rate 4% © Mikhail Pevzner and George Mason University Proceeds \$5,811,089.58 Premium \$ 811,089.58 B: \$5,000,000 C: Par Value \$5,000,000.00 Number of periods 10 Coupon rate 6% Coupon payment \$ 300,000.00 Market rate 8% Proceeds \$4,328,991.86 Discount \$ (671,008.14) 3) Journal entry at issuance date A: Cash \$5,811,089 Bonds Payable \$5,811,089 B: Cash \$5,000,000 Bonds Payable \$5,000,000 © Mikhail Pevzner and George Mason University C: Cash \$4,328,992 Bonds Payable \$4,328,992 4) Construct bond amortization table using: a. Straight line premium/discount amortization method A: periodic premium amortization: \$81,109 1 2 3 4 5 6 7 8 9 10 BB \$5,811,090 \$5,729,981 \$5,648,872 \$5,567,763 \$5,486,654 \$5,405,545 \$5,324,436 \$5,243,326 \$5,162,217 \$5,081,108 nterest Expense \$218,891 \$218,891 \$218,891 \$218,891 \$218,891 \$218,891 \$218,891 \$218,891 \$218,891 \$218,891 Payment (\$300,000) (\$300,000) (\$300,000) (\$300,000) (\$300,000) (\$300,000) (\$300,000) (\$300,000) (\$300,000) (\$300,000) EB \$5,729,981 \$5,648,872 \$5,567,763 \$5,486,654 \$5,405,545 \$5,324,436 \$5,243,326 \$5,162,217 \$5,081,108 \$5,000,000 B: Amortization Table 1 2 3 4 5 6 7 8 9 10 BB \$5,000,000 \$5,000,000 \$5,000,000...
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## This note was uploaded on 02/05/2011 for the course ACCT 301 taught by Professor Hasan during the Fall '09 term at George Mason.

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practice prob bonds solution - © Mikhail Pevzner and...

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