Packet Exercise 10.2 (Bonds Pavable The bonds On January 1, 2018 Nolan Inc issue

Question

Packet Exercise 10.2 (Bonds Pavable The bonds On January 1, 2018 Nolan Inc issued 200 four-year bonds have an annual stated rate of 5% and an annual effective rate of Thebods pay interest semi- rates by 2 when alyFHint:remember to double the 8 periods and divide anmual interest rates by we calculating rates & periods to use for this problem1 Calculate the net present valus of the cash flows related to this bond as of 1/1/1s Face Value Stated Interest Rate # Periods Issue Price Effective Interest Rate Cash Interest Discount Unamortized Bond Book Interest Period Interest Expense Amortization Discount Value 138

Explanation / Answer

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 $20,198.23 a) 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 $7,884.62 $2,884.62 -$0.00 $200,000.00 Total $40,000.00 $60,198.23 $20,198.23

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