On 1st January, 2011, Piper Co. issued 10-year bonds with a face value of $1,000,000 and a stated interest rate of 10 percent, payable semi-annually on June 30 and 31st December. The bonds were sold to yield 12%. Table values are:
Current value of 1 for 10 periods at 10% .386
Current value of 1 for 10 periods at 12% .322
Current resent value of 1 for 20 periods at 5% .377
Current value of 1 for 20 periods at 6% .312
Current value of annuity for 10 periods at 10% 6.145
Current value of annuity for 10 periods at 12% 5.650
Current resent value of annuity for 20 periods at 5% 12.462
Current resent value of annuity for 20 periods at 6% 11.470
Instructions:
- Evaluate the issue price of the bonds.
- Without prejudice to your solution in Part (a), suppose that the issue price was $884,000. Prepare the amortization table for 2011; consider that amortization is recorded on interest payment dates.