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    Sale price and amortization schedule for bonds

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    Assume that on 1-1-07, Janila Co. issued $500,000 of 6%, ten-year bond for a yield of 7%. The bonds pay interest annually on December 31.

    a. What will be the sale price of the bonds?
    b. Prepare an amortization schedule under the effective interest method for the first three years of the bond's life.

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    Solution Preview

    a. What will be the sale price of the bonds?

    The sale price of the bonds will be the present value of interest and principal discounted at the yield of 7%. The interest amount is 500,000X6%=30,000 per year and the principal amount is 500,000. Discounting at 7% ...

    Solution Summary

    The solution explains how to calculate the issue price of the bonds and how to prepare an amortization schedule (see attachment for further details).