Bond Issue--Premium
| Issue one 20 yr
bond, face value $1,000, stated rate is 10%, Market rate is 8% |
| Cash | $1196.37 |
| Unamortized Bond Premium | $196.37 |
| Bonds Payable | $1,000 |
To determine
the amount of cash to be received you must find the present value of the $1,000
the firm has promised to pay 20 years from now plus the present value of the
interest payments it will make over the same period. Assuming that interest is
paid once a year, the factors from the present value tables (single sum and
annuity) (8%, 20 yrs) are as follows:
| PV of
$1 | 0.21455 |
| PV of an Annuity of
$1 | 9.81815 |
Return to Liabilities Discussion
Professor Omer