Coney Island Entertainment issues $1,400,000 of 6% bonds, due in 20 years, with
ID: 2528995 • Letter: C
Question
Coney Island Entertainment issues $1,400,000 of 6% bonds, due in 20 years, with interest payable semiannually on June 30 and December 31 each year.
Calculate the issue price of a bond and complete the first three rows of an amortization schedule when:
Required:
1. The market interest rate is 6% and the bonds issue at face amount. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Do not round interest rate factors.)
2. The market interest rate is 7% and the bonds issue at a discount. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Do not round interest rate factors.)
Required information
3. The market interest rate is 5% and the bonds issue at a premium. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Do not round interest rate factors.)
Explanation / Answer
1) Market interest rate=6% Bond issue at face amount face value $1,400,000 Interest payment ($1400000*6%*6/12) $42,000 Market interest rate (6%/2 semi-annual period) 3% Period to maturity 20years*2 period each year 40 1 2 3 4 5 Amortization Schedule Date Cash paid Interest expense Increase in carrying value Carrying Value Face Value*Stated rate Carrying Value (3)-(2) Prior Carrying Value+4 *Market Rate beginning $1,400,000 30-Jun $ 42,000.00 42000 0 $1,400,000 31-Dec $ 42,000.00 42000 0 $1,400,000 2) Market interest rate=7% Bond issue at discount find present value of interest payment and principal interest 42000 3.5% 40 period PVIFA= 21.35 896700 pincipal 1400000 3.5% 40 period PVIF= 0.2525 353500 1250200 face value $1,400,000 Interest payment ($1400000*6%*6/12) $42,000 Market interest rate (7%/2 semi-annual period) 3.5% Period to maturity 20years*2 period each year 40 1 2 3 4 5 Amortization Schedule Date Cash paid Interest expense Increase in carrying value Carrying Value Face Value*Stated rate Carrying Value (3)-(2) Prior Carrying Value+4 *Market Rate beginning 1250200 30-Jun $ 42,000.00 43757 1757 $1,251,957 31-Dec $ 42,000.00 $43,818.50 1818 $1,253,775 3) Market interest rate=5% Bond issue at premium find present value of interest payment and principal interest 42000 2.5% 40 period PVIFA= 25.1 1054200 pincipal 1400000 2.5% 40 period PVIF= 0.37243 521402 1575602 face value $1,400,000 Interest payment ($1400000*6%*6/12) $42,000 Market interest rate (5%/2 semi-annual period) 2.5% Period to maturity 20years*2 period each year 40 1 2 3 4 5 Amortization Schedule Date Cash paid Interest expense Increase in carrying value Carrying Value Face Value*Stated rate Carrying Value (3)-(2) Prior Carrying Value+4 *Market Rate beginning 1575602 30-Jun $ 42,000.00 39390.05 -2610 $1,572,992 31-Dec $ 42,000.00 $39,324.80 -2675 $1,570,317