Answer:
The company amortize note premium of $2,518.80 in the first year.
Explanation:
First we need to determie price of the note
Price of the bond = [ I x ( 1 - ( 1 + r )^-n ) / r ] + [ F / ( 1 + r )^n ]
Where
F = Face value = $100,000
I = Periodic Interest payment = $100,000 x 9% = $9,000
r = Periodic interest rate = 6%
n = Numbers of periods = 3
Placing values in the formula
Price of the Note = [ $9,000 x ( 1 - ( 1 + 6% )^-3 ) / 6% ] + [ $100,000 / ( 1 + 6% )^3 ]
Price of the Note = $24,057.11 + $83,962.93
Price of the Note = $108,020.04
Price of the Note = $108,020
Calculate the premium
Premium = Price of the note - Face value of the note = $108,020 - $100,000 = $8,020
Now use following formula to calculate the amortization of the premium
Amortization = ( Face vale x stated Interest rate ) - ( Price of the bond x Market interest rate ) = ( $100,000 x 9% ) - ( $108,020 x 6% ) = $2,518.80
