Question
Can you please help solve the formula portions and show the formulas used? PROBLEM DATA The University Club recently issued $1,500,000 of 10-year, 9% bonds
Can you please help solve the formula portions and show the formulas used?
PROBLEM DATA
The University Club recently issued $1,500,000 of 10-year, 9% bonds at an effective interest rate of 10%. Bond interest is payable annually.
REQUIREMENTS
1. You have been asked to calculate the issuance price of the bonds and prepare amortization schedules for any discount or premium. The worksheet BONDS has been provided to assist you. Note that the worksheet contains a scratch pad at the bottom that has been preprogrammed to automatically compute and display the relevant cash flows needed for bond pricing.
2. The bond pricing formula will utilize the NPV (Net Present Value) function on your spreadsheet program. The NPV function will automatically compute the net present value of annual future cash flows discounted at a specific interest rate. The interest rate should be expressed as a cell address.
BONDS | |||||
Bond Pricing and Amortization | |||||
Data Section | |||||
Face value of bond | $1,500,000 | ||||
Years to maturity * | 10 | ||||
Stated interest rate | 9.0% | ||||
Effective interest rate | 10.0% | ||||
* Worksheet is designed for use with bonds having a maturity of | |||||
12 years or less and paying interest annually. | |||||
Answer Section | |||||
Bond issue price | FORMULA1 | ||||
Amortization Schedule - Straight Line Method | |||||
Cash | Interest | (Disc.) | Bond | ||
Year | Paid | Amortization | Expense | Premium | Carrying Value |
0 | FORMULA2 | FORMULA3 | |||
1 | FORMULA4 | FORMULA5 | FORMULA6 | FORMULA7 | FORMULA8 |
2 | FORMULA9 | FORMULA10 | FORMULA11 | FORMULA12 | FORMULA13 |
3 | 0 | 0 | 0 | 0 | 0 |
4 | 0 | 0 | 0 | 0 | 0 |
5 | 0 | 0 | 0 | 0 | 0 |
6 | 0 | 0 | 0 | 0 | 0 |
7 | 0 | 0 | 0 | 0 | 0 |
8 | 0 | 0 | 0 | 0 | 0 |
9 | 0 | 0 | 0 | 0 | 0 |
10 | 0 | 0 | 0 | 0 | 0 |
11 | 0 | 0 | 0 | 0 | 0 |
12 | 0 | 0 | 0 | 0 | 0 |
Amortization Schedule - Effective Interest Method | |||||
Interest | Cash | (Disc.) | Bond | ||
Year | Expense | Paid | Amortization | Premium | Carrying Value |
0 | FORMULA14 | FORMULA15 | |||
1 | FORMULA16 | FORMULA17 | FORMULA18 | FORMULA19 | FORMULA20 |
2 | FORMULA21 | FORMULA22 | FORMULA23 | FORMULA24 | FORMULA25 |
3 | 0 | 0 | 0 | 0 | 0 |
4 | 0 | 0 | 0 | 0 | 0 |
5 | 0 | 0 | 0 | 0 | 0 |
6 | 0 | 0 | 0 | 0 | 0 |
7 | 0 | 0 | 0 | 0 | 0 |
8 | 0 | 0 | 0 | 0 | 0 |
9 | 0 | 0 | 0 | 0 | 0 |
10 | 0 | 0 | 0 | 0 | 0 |
11 | 0 | 0 | 0 | 0 | 0 |
12 | 0 | 0 | 0 | 0 | 0 |
Scratch Pad | |||||
Display of relevant cash flows | |||||
Annual | Bond | ||||
Year | Interest | Maturity | |||
1 | 135000 | 0 | |||
2 | 135000 | 0 | |||
3 | 135000 | 0 | |||
4 | 135000 | 0 | |||
5 | 135000 | 0 | |||
6 | 135000 | 0 | |||
7 | 135000 | 0 | |||
8 | 135000 | 0 | |||
9 | 135000 | 0 | |||
10 | 135000 | 1500000 | |||
11 | 0 | 0 | |||
12 | 0 | 0 | |||
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