Explain evaluation of bond receipts at various interest rate

Reference no: EM1314604

Explain Evaluation of bond receipts at various interest rates

Bond Problem:

On January 1, 2008, the Junco Company issued $500,000 face amount 10 year, 10% stated rate bond when the market interest rates were 11%. The bonds pay interest semi-annually each June 30^th and December 31^st and mature on December 31, 2018.

Required:

a. What is the effective interest rate?

b. Using the present value tables contained on the following pages, calculate the proceeds (issue price) of the Junco Company bonds on January 1, 2008 assuming that the bonds were sold to provide a market rate of return to the investor.

c. What will be the cash interest payment made on June 30^th, 2008

d. Using the effect interest rate method, determine the interest that will be recognized on the income statement on June 30^th, 2008.

e. What will be the new carrying value for the bond on June 30^th, 2008?

Present Value of S1 to be paid in Future

Years	3.0%	3.5%	4.0%	4.5%
1	$0.970874	$0.966184	$0.961538	$0.956938
2	$0.942596	$0.933511	$0.924556	$0.915730
3	$0.915142	$0.901943	$0.888996	$0.876297
4	$0.888487	$0.871442	$0.854804	$0.828561
5	$0.862609	$0.841973	$0.821927	$0.802451
6	$0.837484	$0.813501	$0.790315	$0.767896
7	$0.813092	$0.785991	$0.759918	$0.734828
8	$0.789409	$0.759412	$0.730690	$0.703185
9	$0.766417	$0.733731	$0.702587	$0.672904
10	$0.744094	$0.708919	$0.675564	$0643928
11	$0.722421	$0.684946	$0.649581	$0.616199
12	$0.701380	$0.661783	$0.624597	$0.589664
13	$0.680951	$0.639404	$0.600574	$0.564272
14	$0.661118	$0.617782	$0.577475	$0.539973
15	$0.641862	$0.596891	$0.555265	$0.516720
16	$0.623167	$0.576706	$0.533908	$0.494469
17	$0.605016	$0.557204	$0.513373	$0.473176
18	$0.587395	$0.538361	$0.493628	$0.452800
19	$0.570286	$0.520156	$0.474642	$0.433302
20	$0.553676	$0.502566	$0.456387	$0.414643
21	$0.537549	$0.485571	$0.438834	$0.396787
22	$0.521893	$0.469151	$0.421955	$0.379701
23	$0.506692	$0.453286	$0.405726	$0.363350
24	$0.491934	$0.437957	$0.390121	$0.347703
25	$0.477606	$0.423147	$0.375117	$0.332731

Years	5.0%	5.5%	6.0%	6.5%
1	$0.952381	$0.947867	$0.943396	$0.938967
2	$0.907029	$0.898452	$0.889996	$0.881659
3	$0.863838	$0.851614	$0.839619	$0.827849
4	$0.822702	$0.807217	$0.792094	$0.777323
5	$0.783526	$0.765134	$0.747258	$0.729881
6	$0.746215	$0.725246	$0.704961	$0.685334
7	$0.710681	$0.687437	$0.665057	$0.643506
8	$0.676839	$0.651599	$0.627412	$0.604231
9	$0.644609	$0.617629	$0.591898	$0.567353
10	$0.613913	$0.585431	$0.558395	$0.532726
11	$0.584679	$0.554911	$0.526788	$0.500212
12	$0.556837	$0.525982	$0.496969	$0.469683
13	$0.530321	$0.498561	$0.468839	$0.441017
14	$0.505068	$0.472569	$0.442301	$0.414100
15	$0.481017	$0.447933	$0.417265	$0.388827
16	$0.458112	$0.424581	$0.393646	$0.365095
17	$0.436297	$0.402447	$0.371364	$0.342813
18	$0.415521	$0.381466	$0.350344	$0.321890
19	$0.395734	$0.361579	$0.330513	$0.302244
20	$0.376889	$0.342729	$0.311805	$0.283797
21	$0.358942	$0.324862	$0.294155	$0.266476
22	$0.341850	$0.307926	$0.277505	$0.250212
23	$0.325571	$0.291873	$0.261797	$0.234941
24	$0.310068	$0.276657	$0.246979	$0.220602
25	$0.295303	$0.262234	$0.232999	$0.207138

Years	15.0%
1	$0.869565
2	$0.756144
3	$0.657516
4	$0.571753
5	$0.497177
6	$0.432328
7	$0.375937
8	$0.326902
9	$0.284262
10	$0.247185
11	$0.214943
12	$0.186907
13	$0.162528
14	$0.141329
15	$0.122894
16	$0.106865
17	$0.092926
18	$0.080805
19	$0.070265
20	$0.061100
21	$0.053131
22	$0.046201
23	$0.040174
24	$0.034934
25	$0.030378

Present Value of an Annuity

To Be Paid in the Future

PRESENT WORTH OF ONE DOLLAR PER PERIOD

PAYABLE AT END OF EACH PERIOD

Reference no: EM1314604

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