Monty Inc. has issued three types of debt on January 1, 2017, the start of the c

Question

Monty Inc. has issued three types of debt on January 1, 2017, the start of the company’s fiscal year.

Prepare a schedule that identifies the following items for each bond: (1) maturity value, (2) number of interest periods over life of bond, (3) stated rate per each interest period, (4) effective-interest rate per each interest period, (5) payment amount per period, and (6) present value of bonds at date of issue.

(a) $12 million, 10-year, 15% unsecured bonds, interest payable quarterly. Bonds were priced to yield 10%. (b) $30 million par of 10-year, zero-coupon bonds at a price to yield 10% per year. (c) $20 million, 10-year, 9% mortgage bonds, interest payable annually to yield 10%. Unsecured Bonds Zero-Coupon Bonds Mortgage Bonds (1) Maturity value (2) Number of interest periods (3) Stated rate per period (4) Effective rate per period (5) Payment amount per period (6) Present value Click if you would like to Show Work for this question: Open Show Work

Explanation / Answer

Unsecured Bonds 1. Maturity Value 12000000 2. No.of Interest periods 10*4= 40 3. Stated rate per period 15%/4= 3.75% 4. Effective rate per period 10%/4= 2.50% 5. Payment amount per period 12000000*15%/4= 450000 6. Present Value (450000*(1-1.025^-40)/0.025)+(12000000/1.025^40)= 15765416 Zero Coupon Bonds 1. Maturity Value 30000000 2. No.of Interest periods No coupon payments 0 3. Stated rate per period Not applicable 4. Effective rate per period 10% 5. Payment amount per period 0 6. Present Value 30000000/1.1^10= 11566299 Mortgage Bonds 1. Maturity Value 20000000 2. No.of Interest periods 10*12= 120 3. Stated rate per period 9%/12= 0.75% 4. Effective rate per period 10%12= 0.833% 5. Payment amount per period 20000000*9%/12= 150000 6. Present Value (150000*(1-1.00833^-120)/0.00833)+(20000000/1.00833^120)= 18743648 SUMMARY Unsecured Bonds Zero Coupon Bonds Mortgage Bonds 1. Maturity Value 12000000 30000000 20000000 2. No.of Interest periods 40 0 120 3. Stated rate per period 0.0375 0.0075 4. Effective rate per period 0.025 0.1 0.008333 5. Payment amount per period 450000 0 150000 6. Present Value 15765416 11566299 18743648

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