On January 1, 2013, Piper Co. issued ten-year bonds with a face value of $4,000,000 and a

Question:

On January 1, 2013, Piper Co. issued ten-year bonds with a face value of $4,000,000 and a stated interest rate of 10%, payable semiannually on June 30 and December 31. The bonds were sold to yield 12%. Table values are:

Present value of 1 for 10 periods at 10%................................386

Present value of 1 for 10 periods at 12%................................322

Present value of 1 for 20 periods at 5%..................................377

Present value of 1 for 20 periods at 6%..................................312

Present value of annuity for 10 periods at 10%................... 6.145

Present value of annuity for 10 periods at 12%................... 5.650

Present value of annuity for 20 periods at 5%.................... 12.462

Present value of annuity for 20 periods at 6%.................... 11.470

(a) Calculate the issue price of the bonds.

(b) Without prejudice to your solution in part (a), assume that the issue price was $3,536,000. Prepare the amortization table for 2013, assuming that amortization is recorded on interest payment dates.

Annuity
An annuity is a series of equal payment made at equal intervals during a period of time. In other words annuity is a contract between insurer and insurance company in which insurer make a lump-sum payment or a series of payment and, in return,... Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...