Rommel C.

Vinluan BSA III-A

Problem 12-3: For classroom discussion

Answers:

1. C
2. D
3. B 9,700,000(10,000,000 x 3% transaction cost (service charge) = 300,000)
Face amount 10,000,000
Less: PV 300,000
9,700,000
4. D 1,840,292 (1,900,000 – 59,708)
5. D 147,223 (1,840,292 x 8%)
6. A 1,867,515 (1,840,292 + 27,223)

Date Payments Interest expense Amortization Present value

1/1/x1 1,840,292
12/31/x1 120,000 147,223 27,223 1,867,515
12/31/x2 120,000 149,401 29,401 1,896,916
12/31/x3 120,000 151,753 31,753 1,928,669
12/31/x4 120,000 154,294 34,294 1,962,963
12/31/x5 120,000 157,037 37,037 2,000,000

7. C
8. B
9. C
10. C