Answer:
Cash proceeds is $37,702,607.23
First premium amortization $214,869.64
Second premium amortization is $225,613.12
First year interest expense is $ 3,759,517.24
Explanation:
The amount of cash proceeds from the bond issue is the pv of the bond using the pv formula,=-pv(rate,nper,pmt,fv)
rate is 10% yield to maturity divided 2 since interest is semi-annual i.e 5%
nper is 5 years multiplied by 2=10
pmt is the semi-annual interest payable by the bond i.e $35,000,000*12%*6/12=$2,100,000
fv is the face value of the bond at $35,000,000
=-pv(5%,10,2100000,35000000)
pv=$37,702,607.23
The amount of premium to be amortized in first semi-annual interest payment:
Interest expense=$37,702,607.23*10%/2=$1,885,130.36
coupon interest=$35,000,000*12%/2=$2,100,000
Premium amortized=$2,100,000-$1,885,130.36
premium amortized=$214,869.64
The amount of premium to be amortized in second semi-annual interest payment:
interest expense=($37,702,607.23+$2,100,000-$1,885,130.36)*10%/2
=$1,874,386.88
Premium amortized=$2,100,000-$1,874,386.88
premium amortized=$225613.12
Bond expense for the first payment= 37,702,607.23*10%/2
=$1,885,130.362
Bond expense for the first payment= 37,487,737.59 *10%/2
=$ 1,874,386.88
First year bond interest expense= 1,874,386.88+1,885,130.362
=$ 3,759,517.24
Find attached schedule in addition
