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# Preparing an amortization schedule using effective rate

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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 Summary

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

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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 ...

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• BEng (Hons) , Birla Institute of Technology and Science, India
• MSc (Hons) , Birla Institute of Technology and Science, India
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