Question

On January 1, a company purchased 3%, 20-year corporate bonds for $69.088.776 as an investment. The bonds have a face amount of $80 million and are priced to yield 4%. Interest is paid semiannually.

Prepare a partial amortization table at the effective interest rate on June 30 and December 31.

Answer 1

To create a partial amortization table for the 3%, 20-year corporate bonds, calculate the interest payment and bond value at the effective interest rate on June 30 and December 31.

Step-by-step explanation:

To prepare a partial amortization table for the corporate bonds, we need to calculate the interest payment and bond value at the effective interest rate on June 30 and December 31.

1. On June 30, the interest payment can be calculated as 3% of the face amount ($80 million), which is $2.4 million. The bond value can be calculated by subtracting the interest payment from the previous bond value of $69.088.776 and adding the interest payment.
2. On December 31, the same process is followed. The interest payment is again 3% of the face amount ($80 million), which is $2.4 million. The bond value is calculated by subtracting the interest payment from the previous bond value of $69.088.776 and adding the interest payment.
3. Repeat this process for each semiannual period for the duration of the 20-year bond.