E14-11



E14-11

(Information Related to Various Bond Issues)

Karen Austin Inc. has issued three types of debt on January 1, 2007, the start of the company's fiscal year.

(a) $10,000,000, 10-year, 15% unsecured bonds, interest payable quarterly. Bonds were priced to yield 12%.

(b) $25,000,000 par of 10-year, zero-coupon bonds at a price to yield 12% per year.

(c) $20,000,000, 10-year, 10% mortgage bonds, interest payable annually to yield 12%.

Instructions

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 (Round answers to 2 decimal places of the %.)

(4) effective interest rate per each interest period

(5) payment amount per period

(6) present value of bonds at date of issue (Round answers to the nearest dollar.)

(In calculating present values use Table 6-2 and Table 6-3, or use your calculator to compute present values for one dollar, but use only five digits to the right of the decimal, rounding the fifth digit.)

     (a) Unsecured

Bonds     (b) Zero-Coupon

Bonds     (c) Mortgage

Bonds

(1) Maturity Value     $

$

$

(2) Number of Interest Periods     

(3) Stated rate per period (in %)     

(4) Effective rate per period (in %)     

(5) Payment amount per period (in $)     

(6) Present Value (in $) 

| | |Unsecured Bonds | |Zero-Coupon Bonds | |Mortgage Bonds |

|(1) |Maturity value |$10,000,000 | |$25,000,000 | |$20,000,000 |

| | | | | | | |

|(2) |Number of interest |40 | |10 | |10 |

| |periods | | | | | |

| | | | | | | |

|(3) |Stated rate per period |3.75% ( |15% |) |0 | |10% |

| | | |4 | | | | |

| | | | | | | |

|(4) |Effective rate per period |3% ( |12% |) |12% | |12% |

| | | |4 | | | | |

| | | | | | | |

|(5) |Payment amount per period |$375,000(a) | |0 | |$2,000,000(b) |

| | | | | | | |

|(6) |Present value |$11,733,639(c) | |$8,049,250(d) | |$17,739,840(e) |

(a)$10,000,000 X 15% X 1/4 = $375,000

(b)$20,000,000 X 10% = $2,000,000

(c)Present value of an annuity of $375,000

discounted at 3% per period for

| |40 periods ($375,000 X 23.11477) = | |$ 8,668,039 |

| Present value of $10,000,000 discounted | | |

| |at 3% per period for 40 periods | | |

| |($10,000,000 X .30656) = | | 3,065,600 |

| | | |$11,733,639 |

(d)Present value of $25,000,000 discounted

at 12% for 10 periods

| |($25,000,000 X .32197) = | |$ 8,049,250 |

(e)Present value of an annuity of $2,000,000 discounted

at 12% for 10 periods

| |($2,000,000 X 5.65022) = | |$11,300,440 |

| Present value of $20,000,000 discounted | | |

| |at 12% for 10 years | | |

| |($20,000,000 X .32197) | | 6,439,400 |

| | | |$17,739,840 |

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