Question

On January 1 of this year, Houston Company issued a bond with a face value of $18,000 and a coupon rate of 6 percent. The bond matures in 3 years and pays interest every December 31. When the bond was issued, the annual market rate of interest was 5 percent. Houston uses the effective-interest amortization method. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided. Round your final answers to whole dollars.) Required: 1. Complete a bond amortization schedule for all three years of the bond's life. (Enter all values as positive values.)

Answer 1

Answer:

Houston Company

The Bonds Amortization Schedule

Period PV                           PMT         Interest         FV

1          $18,490.18         $1,080.00         $924.51         $18,334.69

2         $18,334.69        $1,080.00         $916.73         $18,171.43

3         $18,171.43          $1,080.00         $908.57         $18,000.00

Explanation:

a) Data and Calculations:

Face value of bond = $18,000

Coupon rate = 6%

Annual coupon payment = $1,080 ($18,000 * 6%)

From an online financial calculator, the PV of the bond = $18,490.18:

N (# of periods)  3

I/Y (Interest per year)  5

PMT (Periodic Payment) = $1,080

FV (Future Value)  = $18,000

Results

PV = $18,490.18

Sum of all periodic payments = $3,240.00

Total Interest = $2,749.82