Answer:
Santa Corporation
a. The bond's issue price = $901 (PV of all cash inflows).
b. The bond sold at a DISCOUNT. The discount was $99 (equal to total amortization).
c. Bonds payable at the end of:
Year 1 = $931
Year 2 = $964
Explanation:
a) Data and Calculations:
Face value of bond = $1,000
Coupon rate = 6%
Interest payment = Annually on December 31
Bond's maturity period = 3 years
Annual market rate of interest = 10%
N (# of periods) 3
I/Y (Interest per year) 10
PMT (Periodic Payment) 60
FV (Future Value) 1000
Results
PV = $900.53 = $901
Sum of all periodic payments $180.00
Total Interest $279.47
Schedule
Date Cash Paid Interest Expense Amortization Balance
January 1, Year 1 $901
December 31, Year 1 $60 $90 $30 931
December 31, Year 2 60 93 33 964
December 31, Year 3 60 96 36 1,000
