Brooks Inc. has issued three types of debt on January 1, 2014, the start of the

Question

Brooks Inc. has issued three types of debt on January 1, 2014, the start of the company’s fiscal year.

(a) $5 million, 20-year, 8% secured subordinated bonds, interest payable annually. Bonds were priced to yield 10%.

(b) $8 million par of 20-year, zero-coupon bonds at a price to yield 12% per year.

(c) $10 million, 20-year, 10% bonds secured by the factory building interest payable semi-annually to yield 8%.

Prepare a schedule that identifies the following items for each bond (Only need to chose a, b or c…but no repeats until all are presented in the thread): (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.

Explanation / Answer

Brooks inc 8% secured bond zero coupan bond 10% secured bond $ $ $ 1) maturity value 50,00,000 80,00,000 100,00,000 2) no of interest periods 20 20 20 3) stated rate per period 8% 0 10/2 =5% 4) effective rate per period 10% 12% 8/2= 4% 5) payment amount per period $400,000 (a) 0 500000 (b) 6) present value 4145200 c) 829334 (d) 13555000 e) workings: a) $ 50,00,000 x 8% = 400000 b) $ 100,00,000 x 5% = 500000 c) present value of an annuity of $ 400000 discounted at 10% per period for 20 periods ($ 400000 x 8.513) $3,405,200 present value of $ 5000000 discounted at 10% per period for 20 periods ( $ 5000000 x .148) $740,000 $ 4145200 (d) present value of $8000000 dicounted for 12% per period for 20 periods ($ 8000000 x .104) $ 829334 e) present value of $ 500000 discounted at 4% per period for 20 periods ( $ 500000 x 13.59) $6,795,000 present value of $ 10000000 discounted for 4% per period for 20 period ( $ 10000000 x .456 ) $4,560,000 $11,355,000

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