1. On January 1, Microsoft Corp. issues 10 bonds with a 3-month term. The bonds have a stated rate of 12% and a face value of $1,000. Interest is paid monthly. The market interest rate on January 1 is 18%.
   1. Before doing any math, do you expect this bond to be issued at a premium, a discount, or face value? Why?

2. Draw a picture of the cash flows that the bond promises. You will calculate the bonds interest payments by multiplying the face value by the stated interest rate.

3. Calculate the issue price of the bond. The issue price is the present value of the bonds cash flows, discounted at the market rate.

4. Prepare an amortization table for the bond. Make sure that the carrying value of the bond is within a couple dollars of face value on the date that the bond is repaid.

Date	Cash Payment	Interest Expense	Change in Carrying Value	Carrying Value