Mgmt 200 Assignment Soln 3-25-11

# Mgmt 200 Assignment Soln 3-25-11 - FV \$40,000,000 2...

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Management 200 – Introductory Financial Accounting– Spring 2011 Krannert School of Management - Purdue University Solutions to class assignment for March 25, 2011 Exercise 9-3 Requirement 1 Premium. The issue price is \$43,678,409 Calculator Input Bond Characteristics Key Amount 1. Face amount FV \$40,000,000 2. Interest payment PMT \$1,600,000 = \$40,000,000 x 8% x ½ year 3. Market interest rate I 3.5% = 7% / 2 semi-annual periods 4. Periods to maturity N 30 = 15 years x 2 periods each year Calculator Output Issue price PV \$43,678,409 Requirement 2 Face amount. The issue price is \$40,000,000. Calculator Input Bond Characteristics Key Amount 1. Face amount FV \$40,000,000 2. Interest payment PMT \$1,600,000 = \$40,000,000 x 8% x ½ year 3. Market interest rate I 4% = 8% / 2 semi-annual periods 4. Periods to maturity N 30 = 15 years x 2 periods each year Calculator Output Issue price PV \$40,000,000

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Requirement 3 Discount. The issue price is \$36,742,222 Calculator Input Bond Characteristics Key Amount 1. Face amount
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Unformatted text preview: FV \$40,000,000 2. Interest payment PMT \$1,600,000 = \$40,000,000 x 8% x ½ year 3. Market interest rate I 4.5% = 9% / 2 semi-annual periods 4. Periods to maturity N 30 = 15 years x 2 periods each year Calculator Output Issue price PV \$36,742,222 Exercise 9-9 Requirement 1 (1) Date (2) Cash Paid (3) Interest Expense (4) Increase in Carrying Value (5) Carrying Value Face Amount x Stated Rate Carrying Value x Market Rate (3) – (2) Prior Carrying Value + (4) 1/ 1 /12 \$ 446,612 6/30/12 \$ 15,000 \$ 15,631 \$ 631 447,243 12/31/12 15,000 15,654 654 447,897 Requirement 2 January 1, 2012 Cash 446,612 Bonds Payable 446,612 (To record the bond issue) June 30, 2012 Interest Expense 15,631 Bonds Payable (difference) 631 Cash (\$500,000 x 6% x ½) 15,000 (First semi-annual interest payment) June 30, 2012 Interest Expense 15,654 Bonds Payable (difference) 654 Cash (\$500,000 x 6% x ½) 15,000 (Second semi-annual interest payment)...
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## This note was uploaded on 02/27/2012 for the course MGMT 200 taught by Professor Greigg during the Spring '08 term at Purdue.

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Mgmt 200 Assignment Soln 3-25-11 - FV \$40,000,000 2...

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