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15.3 bond schedules solutions[1]

# 15.3 bond schedules solutions[1] - 0011 0010 1010 1101 0001...

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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)

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4/12/2010 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 8.89 1018.86 18.86 3 50.00 40.75 9.25 1009.61 9.61 4 50.00 40.38 9.61 1000.00 0.00 TOTAL 200.00 Schedule of Amortization of Premium
4/12/2010 3 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

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