REVIEW QUESTIONS

Compute for the total amount received to issue the bonds under the following independent situations: (Round off
present value factors to four decimal places)

Situation 1:

Face value P1,000,000

Date of bonds January 1, 20x22
Date of maturity January 1, 20x25
Issue date January 1, 20x22
Nominal rate 10%
Effective rate 12%
Interest payment date January 1

Nominal 12%
Effective 10%
PV of 1 0.7462 = 1.05^-6
PV OA 5.0757 = (1-(1.05^-3))/0.05
Principal 1,000,000
Interest 60,000 = 1M x 6%

PV of Principal 746,200
PV of Interest 304,542
PRESENT VALUE 1,050,742

AMORTIZATION TABLE
Interest paid Interest expense Premium Amortization Carrying Amount
Jan. 1, 20x22 1,050,742
Jul. 1, 20x22 60,000 52,537 7,463 1,043,279
Jan. 1, 20x23 60,000 52,164 7,836 1,035,443
Jul. 1, 20x23 60,000 51,772 8,228 1,027,215
Jan. 1, 20x24 60,000 51,361 8,639 1,018,576
Jul. 1, 20x24 60,000 50,929 9,071 1,009,505
Jan. 1, 20x25 60,000 50,475 9,505 1,000,000

Situation 2

Face value P1,000,000

Date of bonds January 1, 20x22
Date of maturity January 1, 20x25
Issue date January 1, 20x22
Nominal rate 12%
Effective rate 10%
Interest payment dates January 1 and July 1
 Nominal 10%
Effective 12%
PV of 1 0.7118 = 1.12^-3
PV OA 2.4018 = (1-(1.12^-3))/0.12
Principal 1,000,000
Interest 100,000 = 1M x 10%

PV of Principal 711,800
PV of Interest 240,180
PRESENT VALUE 951,980

AMORTIZATION TABLE
Interest paid Interest expense Discount Amortization Carrying Amount
Jan. 1, 20x22 951,980
Jan. 1, 20x23 100,000 114,238 14,238 966,218
Jan. 1, 20x24 100,000 115,946 15,946 982,164
Jan. 1, 20x25 100,000 117,837 17,837 1,000,000

Situation 3

Face value P1,000,000

Date of bonds January 1, 20x22
Date of maturity January 1, 20x25
Issue date March 1, 20x22
Nominal rate 10%
Effective rate 12%
Interest payment dates January 1 and July 1

Nominal 10%
Effective 12%
PV of 1 0.705 = 1.06^-6
PV OA 4.9173 = (1-(1.06^-6))/0.06
Principal 1,000,000
Interest 50,000 = 1M x 5%

PV of Principal 705,000
PV of Interest 245,865
PV, 1/1/22 950,865
Add: Discount Amortized
950,865 x 6% x 2/6 19,017
1,000,000 x 5% x 2/6 (16,667) 2,351
PV 3/1/22 953,216
Add: Accrued Interest
1,000,000 x 5% x 2/6 16,667
PRESENT VALUE 969,882

AMORTIZATION TABLE
Interest paid Interest expense Discount Amortization Carrying Amount
Jan. 1, 20x22 950,865
Jul. 1, 20x22 50,000 57,052 7,052 957,917
Jan. 1, 20x23 50,000 57,475 7,475 965,392
Jul. 1, 20x23 50,000 57,924 7,924 973,315
Jan. 1, 20x24 50,000 58,399 8,399 981,714
Jul. 1, 20x24 50,000 58,903 8,903 990,617
Jan. 1, 20x25 50,000 59,383 9,383 1,000,000

Situation 4

Face value P3,000,000

Date of bonds January 1, 20x22
 Date of maturity P1,000,000 annually starting December 31, 20x22
Issue date January 1, 20x22
Nominal rate 10%
Effective rate 12%
Interest payment date December 31

Nominal 10%
Effective 12%
PV of 1 0.8929 = 1.12^-1
0.7972 = 1.12^-2
0.7118 = 1.12^-3
Principal 3,000,000
Interest 300,000 = 3M x 10%

Date Principal Interest Total PV @ 12% PV 1/1/22

12/31/22 1,000,000 300,000 1,300,000 0.8929 1,160,770
12/31/23 1,000,000 200,000 1,200,000 0.7972 956,640
12/31/24 1,000,000 100,000 1,100,000 0.7118 782,980
3,000,000 600,000 3,600,000 2,900,390

PRESENT VALUE 2,900,390

AMORTIZATION TABLE
Interest paid Interest expense Discount Amortization Serial payment Carrying Amount
Jan. 1, 20x22 2,900,390
Jan. 1, 20x23 300,000 348,047 48,047 1,000,000 1,948,437
Jan. 1, 20x24 200,000 233,812 33,812 1,000,000 982,249
Jan. 1, 20x25 100,000 117,751 17,751 1,000,000 0