Financial assets

The company Capital fjrfestingar ehf. buys all five bonds at the beginning of 2020, but the nominal value of each bond is ISK 10,000,000. The bond series is for five years and includes installments on the principal of the bonds, together with interest on 1 January and 1 July each year. The nominal interest rate is 9%, but the yield on the date of issue was based on 7.5% annual interest.

The following needs to be resolved;

a. The present value of the installments on the one hand and the interest on the other. What is the present value of each share and the bonds that Capital buys? b. Set up a table that shows the contractual payment flow where interest income, principal repayments and total payment for all 10 payments are shown, as well as according to the effective interest method. c. Show what transactions need to be made in Capital's accounting in the year 2020 for the bond asset. Be sure to show all dates, names of relevant accounting keys and all figures in whole dollars. Entries may be displayed as T-invoices instead of standard presentation if you prefer.