On January 1, 2018 Nolan Inc issued 200 four year bonds, each with a 1000 dollar
ID: 3282131 • Letter: O
Question
On January 1, 2018 Nolan Inc issued 200 four year bonds, each with a 1000 dollar face value. the bonds have an annual stated rate of 5 and an annual affective rate of 8. the bonds pay interest semi annually. calculate the face value of the bonds. what interest rate should be used to calculate cash paid for interest every six months. calculate cash paid for interest every 6 months calculate the net present value of the cash flows related to thisbondS of 1/1/2018. the. fill out the sheet with all of the following in individual columns: interest period, cash interest, interest expense, discount amortistation, I amortized discount, bond book value.
Explanation / Answer
$20198.23
Nolan inc. Face Value = 200 bonds x $1000 $200,000.00 Period = 4 x 2 8 Coupon Rate semiannual = 5%/2 2.50% Coupon Payment = $200,000 x 2.50% $5,000.00 YTM = 8%/2 4.00% Present Value = PV(4%,8,-5000,-200000) $179,801.77 Bonds issued at Discount FV- PV $20,198.23a) Interest rate for cash paid 2.50% b) Cash paid for interest $5,000.00
c) For NPV Interest = 4% and Period = 8 D) NPV FV $200,000.00 Stated Rate 2.50% # of period
8 Issue Price $179,801.77 Effective Interest Rate 4.00% A B C D E F Period Cash Interest Interest exp.= 8%/2 x Previous BV in F Amortisation of bond discount (C - B) Unamortized discount Book value of bond (F-E) 1/1/18 $20,198.23 $179,801.77 6/1/18
$5,000.00 $7,192.07 $2,192.07 $18,006.16 $181,993.84 12/1/18 $5,000.00 $7,279.75 $2,279.75 $15,726.41 $184,273.59 6/1/19 $5,000.00 $7,370.94 $2,370.94 $13,355.47 $186,644.53 12/1/19 $5,000.00 $7,465.78 $2,465.78 $10,889.69 $189,110.31 6/1/20
$5,000.00
$7,564.41 $2,564.41 $8,325.27 $191,674.73 12/1/20
$5,000.00 $7,666.99 $2,666.99 $5,658.28 $194,341.72 6/1/21 $5,000.00
$7,773.67 $2,773.67 $2,884.62 $197,115.38 12/1/21 $5,000.00 $788462 $288462 -$0.00 $200,000.00 $40,000.00 $60,198.23$
$20198.23