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

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

Step-by-step 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