Chapter 14 Spiceland 6th edition

Chapter 14 Spiceland 6th edition - Exercise 14-2 1....

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Unformatted text preview: Exercise 14-2 1. Maturity Interest paid Stated rate Effective (market) rate 10 years annually 10% 12% Interest $100,000 x 5.65022 * = $565,022 Principal $1,000,000 x 0.32197 ** = 321,970 Present value (price) of the bonds $886,992 10% x $1,000,000 * present value of an ordinary annuity of $1: n=10, i=12% (Table 4) ** present value of $1: n=10, i=12% (Table 2) 2. Maturity Interest paid Stated rate Effective (market) rate 10 years semiannually 10% 12% Interest $50,000 x 11.46992 * = $573,496 Principal $1,000,000 x 0.31180 ** = 311,800 Present value (price) of the bonds $885,296 5% x $1,000,000 * present value of an ordinary annuity of $1: n=20, i=6% (Table 4) ** present value of $1: n=20, i=6% (Table 2) 3. MaturityInterest paidStated rateEffective (market) rate 10 years semiannually 12% 10% Interest $60,000 x 12.46221 * = $ 747,733 Principal $1,000,000 x 0.37689 ** = 376,890 Present value (price) of the bonds $1,124,623 6% x $1,000,000 * present value of an ordinary annuity of $1: n=20, i=5% (Table 4) ** present value of $1: n=20, i=5% (Table 2) 4. Maturity Interest paid Stated rate Effective (market) rate 20 years semiannually 12% 10% Interest $60,000 x 17.15909 * = $1,029,545 Principal $1,000,000 x 0.14205 ** = 142,050 Present value (price) of the bonds $1,171,595 6% x $1,000,000 * present value of an ordinary annuity of $1: n=40, i=5% (Table 4) ** present value of $1: n=40, i=5% (Table 2) Exercise 14-2 (concluded) 5. Maturity Interest paid Stated rate Effective (market) rate 20 years semiannually 12% 12% Interest $60,000 x 15.04630 * = $902,778 Principal $1,000,000 x 0.09722 ** = 97,220 Present value (price) of the bonds $999,998 actually, $1,000,000 if PV table factors were not rounded 6% x $1,000,000 * present value of an ordinary annuity of $1: n=40, i=6% (Table 4) ** present value of $1: n=40, i=6% (Table 2) Exercise 14-7 1. Price of the bonds at January 1, 2011 Interest $7,500,000 x 13.76483 * = $103,236,225 Principal $150,000,000 x 0.17411 ** = 26,116,500 Present value (price) of the bonds $129,352,725 5% x $150,000,000 * present value of an ordinary annuity of $1: n=30, i=6% (Table 4) ** present value of $1: n=30, i=6% (Table 2) 2. January 1, 2011 Cash (price determined above)................................ 129,352,725 Discount on bonds payable (difference)............... 20,647,275 Bonds payable (face amount)............................ 150,000,000 3. June 30, 2011 Interest expense ($7,500,000 + $688,243)........................ 8,188,243 Discount on bonds payable ($20,647,275 30)........ 688,243 Cash (5% x $150,000,000)........................................ 7,500,000 4. December 31, 2018 Interest expense ($7,500,000 + $688,243)........................ 8,188,243 Discount on bonds payable ($20,647,275 30)........ 688,243 Cash (5% x $150,000,000)........................................ 7,500,000 [Using the straight-line method, each interest entry is the same.] Exercise 14-9...
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Chapter 14 Spiceland 6th edition - Exercise 14-2 1....

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