Exercise 14-2 Marin Inc. has issued three types of debt on January 1, 2017, the

Question

Exercise 14-2 Marin Inc. has issued three types of debt on January 1, 2017, the start of the company's fiscal year: 1. S11 million, 12-year, 10% unsecured bonds, with interest payable quarterly, priced to yield 2. S2.60 million par of 8-year, zero-coupon bonds at a price to yield 8% per year 3. $18 million, 8-year, 7% mortgage bonds, with interest payable annually to yield 8% Prepare a schedule that identifies the following items for each bond: (For calculation purposes, use 5 decimal places as displayed in the factor table provided round percentages to 2 decimal 896 places, e.g. 15.12 and all other answers to 0 decimal places, e.g. 5,275. Do not leave any answer field blank. Enter 0 for amounts.) Unsecured Bonds Zero Coupon Bonds Mortgage Bonds (a) Maturity value (b) Number of interest periods over the life of the bond (c) Stated rate for each interest period (d) Effective interest rate for each interest period (e) Payment amount per period (f) Present value of the bonds at the date of issue

Explanation / Answer

Unsecured bonds Zero coupon bonds Mortgage bonds Maturity value $11 million $2.6 million $18 million number of the interest period over the life of the bond 12*4 = 48 nil 8 stated rate for each interst period 10% 0 7% effective interest rate for each period 8% 8% 8% payment amount per period    0 $1.26 million (11*10%*1/4) (18*7%) present value of bonds at the date of issue 12 million 1.4 million 17 million present value of bonds at the date of issue of unsecured bonds = (0.275*PVAF)+(18*PVF) = (0.275*26.47493)+(18*.27194) = 12 million PVAF(2.5%,48 PERIODS) = 26.47493 PVF(2.5%,48TH PERIOD) = 0.27194 present value of zero coupon bonds = 2.6*PVF(8%,8yrs) = 2.6*0.540 = 1.4 million present value of mortgage bonds = (1.26*PVAF)+(18*PVF) = (1.26*5.74664)+(18*.54027) =16.96 million PVAF(8%,8yrs) = 5.74664 PVF(8%,8th period) = 0.54027

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