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On December 31, 2012, a company issued a 3-year, 10% annual coupon bond with a face...

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Finance

On December 31, 2012, a company issued a 3-year, 10% annualcoupon bond with a face value of $100,000. Calculate the book valueof the bond at year-end 2012, 2013, and 2014, and the interestexpense for 2013, 2014, and 2015, assuming the bond was issued at amarket rate of interest of (A) 10%, (B) 9%, and (C) 11%.

Answer & Explanation Solved by verified expert
4.5 Ratings (618 Votes)
A Face value 100000 Annual coupon rate 10 Period ofbond 3 years interest rate 10Coupon annual coupon rate x face value 10 x 100000 10000First we will find the selling price of bond on December 312012 using pv function in excelFormula to be used in excel pvratenperpmtfvUsing pv function in excel we get price of bond at end of 2012 100000Hence Book value at end of 2012 100000Since the bond has been issued at par and interest rate couponrate therefore there will not be any amortization of discount orpremium Therefore book value bond will be equal to par value ofbond at all coupon datesHence book value of bond at end of 2013 book value of bond atend of 2014 100000YearEnding Book value201210000020131000002014100000Interest expense for a year Interest rate x book value atbeginning of yearInterest expense for 2013 10 x book value    See Answer
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Transcribed Image Text

On December 31, 2012, a company issued a 3-year, 10% annualcoupon bond with a face value of $100,000. Calculate the book valueof the bond at year-end 2012, 2013, and 2014, and the interestexpense for 2013, 2014, and 2015, assuming the bond was issued at amarket rate of interest of (A) 10%, (B) 9%, and (C) 11%.

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