The following information pertains to a bond issue of the Fusso Corporation: Mat
ID: 2791946 • Letter: T
Question
The following information pertains to a bond issue of the Fusso Corporation: Maturity value: $1,000,000 Maturity date: December 31, 2016 Stated interest rate (coupon rate): 8% Interest payments are Date of issue: December 31, 2011 Effective (market) interest rate (Yield to maturity) at issue: 10% On December 31, 2014, the Fusso paid $950,000 to retire entire bonds. $950,000 did not include the coupon payment. The coupon was paid just before the announcement of the bond retirement. made annually on Decem oss using - Format: +Sxx,xxx or -Sxx,xxx)Explanation / Answer
Bond payoff schedule - Particulars Calculations Amount No. of payments (5 x 1) 5 Principal Amount 1000000 Coupon rate 8% Market Rate of Interest 10% Coupon payments (Principal x coupon rate) 80000 Present Value of Coupons on Bond -PV(10%,5,80000,1000000) $ 9,24,184.26 Year Beginning Book Value Interest Expense Payment Reduction in Principle Ending book value Dec-12 924184.26 92418.42646 80000 -12418.42646 936602.6911 Dec-13 936602.69 93660.26911 80000 -13660.26911 950262.9602 Dec-14 950262.96 95026.29602 80000 -15026.29602 965289.2562 Dec-15 965289.2562 96528.92562 80000 -16528.92562 981818.1818 Dec-16 981818.1818 98181.81818 80000 -18181.81818 1000000 Carrying value of bond on 31 dec 2014 after payment of coupon = 965289.2562 Retirement value of bond on the same date = 950000.0000 Gain on repayment of bond 15289.2562 Please provide feedback… Thanks in Advance :-)
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