15.3 bond schedules solutions[1]

15.3 bond schedules solutions[1] - 4/12/2010 0011 0010 1010...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
4/12/2010 1 4 2 5 1 0011 0010 1010 1101 0001 0100 1011 15.3 Bond Schedules 4 2 5 1 0011 0010 1010 1101 0001 0100 1011 Amortization of Premium Premium is not recovered at maturity To avoid capital loss the premium is written down gradually from purchase date to maturity date Initial Book Value = BV 0 = Purchase Price Final Book Value = BV n = Redemption Value Record bond interest (PMT) and interest on book value at yield rate (BV × i)
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 4 2 5 1 0011 0010 1010 1101 0001 0100 1011 A $1,000 bond at j 2 = 10% is redeemable in 2 years is purchased to yield j 2 = 8%. Construct the schedule of amortization of premium. Compute the purchase price: Bond rate: j 2 = 10% b = .10/2 =.05 PMT = +1,000 × .05 = 50 FV = +1,000 N = 4 I/Y = 8 P/Y = 2 C/Y = 2 CPT PV = -$1,036.30 Premium = $36.30 4 2 5 1 0011 0010 1010 1101 0001 0100 1011 Payment Interval Bond Interest Interest on BV at yield Premium Amortized Book Value Remaining Premium 0 - - - 1036.30 36.30 1 50.00 41.45 8.55 1027.75 27.75 2 50.00 41.11
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 5

15.3 bond schedules solutions[1] - 4/12/2010 0011 0010 1010...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online