Karen Austin Inc. has issued three types of debt on January 1, 2017, the start of the company’s fiscal year.

1. \(10 million, 10-year, 15% unsecured bonds, interest payable quarterly. Bonds were priced to yield 12%.
2. \)25 million par of 10-year, zero-coupon bonds at a price to yield 12% per year.
3. $20 million, 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, (4) effective-interest rate per each interest period, (5) payment amount per period, and (6) present value of bonds at date of issue.

Sr. no.

Particular

15% Unsecured

Bonds

Zero-coupon

Bonds

10% Mortgage

Bonds

1

Maturity value

$10,000,000

$25,000,000

$20,000,000

2

Number of interests

periods

40

10

10

3

Stated rate per period

$\left(\frac{15\%}{4}\right)$ 3.75 %

0

10%

4

Effective rate per period

$\left(\frac{12\%}{4}\right)$ 3%

12%

12%

5

Payment amount per period

$375,000

0

$2,000,000

6

Present value

$11,733,639

$8,049,250

$17,739,840

Present value of an annuity of $375,000 discounted at 3% per period for 40 periods $\left(\$375,000\times 23.11477\right)$

$8,668,039

Present value of $10,000,000 discounted at 3% per period for 40 periods at 3% per periods for 40 periods $\left(\$10,000,000\times 0.30656\right)$

3,065,600

$11,733,639

Present value of $25,000,000 discounted at 12% per period for 10 periods at 12% for 10 periods data-custom-editor="chemistry" $\left(\$25,000,000\times 0.32197\right)$

$8,049,250

Present value of an annuity of $2,000,000 discounted at 12% per for 10 periods $\left(\$2,000,000\times 5.65022\right)$

$11,300,440

Present value of $20,000,000 discounted at 12% per period for 10 years $\left(\$20,000,000\times 0.32197\right)$

6,439,400

$17,739,840