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I need help on this homework, I will need only e and h, I have worked the rest. Rose company issued 5-year bonds on 1/1/13
I need help on this homework, I will need only e and h, I have worked the rest.
Rose company issued 5-year bonds on 1/1/13 with semiannual interest payments Par Value 1,000,000 Market Price 926,405 Issue price 92.6405 Total Discount 73,595 Semiannual Contract Rate 5% Annual Contract Interest Rate = 10% Semiannual Market Rate 6% Annual Market Interest Rate = 12% EFFECTIVE INTEREST METHOD Period 1 2 3 4 5 6 7 8 9 10 Semiannual interest period-end 1/1/2013 6/30/2013 12/31/2013 6/30/2014 12/31/2014 6/30/2015 12/31/2015 6/30/2016 12/31/2016 6/30/2017 12/31/2017 Total Cash Interest Payment Interest Expense Amortized Discount 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 55,584 55,919 56,274 56,651 57,050 57,473 57,921 58,397 58,900 59,426 5,584 5,919 6,274 6,651 7,050 7,473 7,921 8,397 8,900 9,426 500,000 573,595 Unamortized Discount 73,595 68,011 62,092 55,818 49,167 42,117 34,644 26,723 18,326 9,426 - Carrying Effective Value Interest Rate 926,405 931,989 6.00% 937,908 6.00% 944,182 6.00% 950,833 6.00% 957,883 6.00% 965,356 6.00% 973,277 6.00% 981,674 6.00% 990,574 6.00% 1,000,000 6.00% Unamortized Discount 73,595 66,235 58,875 51,515 44,155 36,795 29,435 22,075 14,715 7,355 - Carrying Effective Value Interest Rate 926,405 933,765 6.19% 941,125 6.14% 948,485 6.09% 955,845 6.05% 963,205 6.00% 970,565 5.96% 977,925 5.91% 985,285 5.87% 992,645 5.82% 1,000,000 5.78% Effective Interest Rate - Steps 1. Cash Interest Payment = Par Value x Contract Interest Rate 2. Intererest Expense = Carrying Value x Market Interest Rate 3. Amortized Discount = Interest Expense - Cash Interest Payment 4. Unamortized Discount = Prior Period Balance- Amortized Discount or = Total Discount - Total Amortized Discount 5. Carrying Value = PAR Value - Unamortized Discount 6. Effective Interest Rate = Interest Expense / Carrying Value 73,595 Note: All interest rates are semiannual rates as interests are paid every 6 months. STRAIGHT LINE METHOD Period 1 2 3 4 5 6 7 8 9 10 Semiannual interest period-end 1/1/2013 6/30/2013 12/31/2013 6/30/2014 12/31/2014 6/30/2015 12/31/2015 6/30/2016 12/31/2016 6/30/2017 12/31/2017 Total Cash Interest Payment Interest Expense Amortized Discount 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 57,360 57,360 57,360 57,360 57,360 57,360 57,360 57,360 57,360 57,355 7,360 7,360 7,360 7,360 7,360 7,360 7,360 7,360 7,360 7,355 500,000 573,595 73,595 Straight Line - Steps 1. Cash Interest Payment = Par Value x Contract Interest Rate 2 Amortized Discount = Total Discount / Periods 3. Intererest Expense = Cash Interest Payment + Amortized Discount 4. Unamortized Discount = Prior period balance - Amortized Discount or = Total Discount - Total Amoritzed Discount 5. Carrying Value = PAR Value - Unamortized Discount 6. Effective Interest Rate = Interest Expense / Carrying Value Note: All interest rates are semiannual rates as interests are paid every 6 months.Step by Step Solution
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