Exercise 14-11 Grouper Inc. has issued three types of debt on January 1, 2017, t

Question

Exercise 14-11 Grouper Inc. has issued three types of debt on January 1, 2017, the start of the company's fiscal year (a) $11 million, 9-year, 15% unsecured bonds, interest payable quarterly. Bonds were priced to yield 12% (b) $28 million par of 9-year, zero-coupon bonds at a price to yield 12% per year. (c) $17 million, 9-year, 11% mortgage bonds, interest payable annually to yield 12% Prepare a schedule that identifies the following items for each bond: (1) maturity value, (2) number of interest periods over life of bond, (3) stated rate per each interest period, (4) effective-interest rate per each interest period, (5) payment amount per period, and (6) present value of bonds at date of issue. (Round stated and effective rate per period to 2 decimal places, e.g. 10.25%. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.) Unsecured Bonds Zero-Coupon Bonds Mortgage Bonds (1) Maturity value (2) Number of interest periods (3) Stated rate per period (4) Effective rate per period (5) Payment amount per period (6) Present value 11,000,000 s28,000,000 17,000,000 LINK TO TEXT

Explanation / Answer

Solution:

Computation of Present Value of bonds:

Present value of bond is equal to present value of interest and principal discounted at yield.

a. Unsecured bond:

Quarterly rate of interest = 15%/4 = 3.75%

Quarterly yield = 12%/4 = 3%

Total quarterly periods till maturity = 9*4 = 36

Present value of bond = ($11,000,000*3.75% * cumulative PV factor at 3% for 36 periods) + ($11,000,000 * PV Factor at 3% for 36th period)

= ($412,500 * 21.83225) + ($11,000,000 * 0.345032) = $12,801,161

b. Zero coupon bond:

market rate of interest = 12%

Period = 9 years

Present value = $28,000,000 * PV Factor at 12% for 9th period = $28,000,000 * 0.36061

= $10,097,081

Mortagage bonds:

Coupon rate = 11%

market rate = 12%

Period = 9 Years

Present Value = ($17,000,000 * 11% * Cumulative PV factor at 12% for 9 periods) + ($17,000,000 * PV Factor at 12% for 9th period)

= $1,870,000 * 5.32825 + $17,000,000 * 0.36061

= $16,094,198

Schedule of bonds Particulars Unsecured bonds Zero coupon bonds Mortgage bonds Maturity Value $11,000,000.00 $28,000,000.00 $17,000,000.00 Number of interest periods 36 1 9 Stated rate per period 3.75% 11% Effective rate per period 3.00% 177.31% 12.00% Payment amount per period $412,500.00 $17,902,919.00 $1,870,000.00 Present Value $12,801,161.00 $10,097,081.00 $16,094,198.00

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.