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Preparing an amortization schedule using effective rate

National Orthopedics Co. issued 9% bonds, dated January 1, with a face amount of $500,000 on January 1, 2011. The bonds mature in 2014 (4 years). For bonds of similar risk and maturity the market yield was 10%. Interest is paid semiannually on June 30 and December 31.

Prepare an amortization schedule that determines interest at the effective rate each period.

Solution Preview

Please refer attached file for better clarity of table and missing expressions.

Let us calculate PV of bond issue i.e. the amount received at the issuance.

Face Value=maturity amount=500,000.00
Coupon amount=PMT=500000*9%/2=22,500.00 semi annual
Number of periods=NPER=4*2=8 half years
Market yield=RATE=10%/2=5.00% semi annual

PV of bond ...

Solution Summary

Solution describes the steps to prepare an amortization schedule that determines interest at the effective rate each period.

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