Bonds - Selling Price, Amort, Entries

Bonds - Selling Price, Amort, Entries - Facts for Examples...

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Facts for Examples of a Bond: -- Selling at Par -- Selling at a Discount -- Selling at a Premium Bond Contract Facts: Face Amount: $300,000 5.00% Term: 4 Years Interest Paid: Annually $15,000 Cash Payment Stream from the Bond: Now (time 0) End of Yr. 1 End of Yr. 2 End of Yr. 3 End of Yr. 4 Cash Interest Payment $15,000 $15,000 $15,000 $15,000 Maturity Payment of the Bond $300,000 Selling Price of the Bond if Payment Amt. Table Factor Present Value $15,000 3.54595 $53,189.25 Present Value of $300,000 Maturity Pmt. $300,000 0.82270 $246,810.00 Selling Price of the Bond using the present value tables $299,999.25 Selling Price of the Bond if Present Value Tables with more than 5 decimal places were used $300,000.00 Selling Price of the Bond if Payment Amt. Table Factor Present Value $15,000 3.46511 $51,976.65 Present Value of $300,000 Maturity Pmt. $300,000 0.79209 $237,627.00 $289,603.65 Selling Price of the Bond if Present Value Tables with more than 5 decimal places were used $289,604.68 Selling Price of the Bond if Payment Amt. Table Factor Present Value $15,000 3.62990 $54,448.50 Present Value of $300,000 Maturity Pmt. $300,000 0.85480 $256,440.00 $310,888.50 Selling Price of the Bond if Present Value Tables with more than 5 decimal places were used $310,889.69 Stated Annual Interest Rate: Annual Cash Interest Payments: $300,000 x 5% (stated annual rate) = Effective Annual Interest Rate = 5% Present Value of $15,000 Interest Pmts. for 4 periods @ 5% (effective annual rate) due in 4 periods @ 5% (effective annual rate) sold at par ( effective rate = stated rate ) Effective Annual Interest Rate = 6% Present Value of $15,000 Interest Pmts. for 4 periods @ 6% (effective annual rate) due in 4 periods @ 6% (effective annual rate) Selling Price of the Bond using the present value tables -- this would be your calculated answer sold at a discount ( effective rate > stated rate ) Effective
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Bonds - Selling Price, Amort, Entries - Facts for Examples...

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