Question

bond

You bought a bond 6 years ago for $3,500. It has a $4,000 face value and a nominal annual 10 % bond rate, paid quarterly (so iR pays 2.5% of the face value each quarter), You'd ike to sell it now and get a nominal annual yield of 8% How much should you sell the bond for? How much should you sell the bond for? Round to the nearest dollar)

you bought a bond 6 years ago for $3,500. It has a $4,000 face value and a nominal annual 10% bond rate, paid quarterly. You'd like to sell it now and get a nominal annual yield of 8%. How much should you sell it for

Answer 1

Nominal rate per quarter (10%/4)	2.50%
Market rate per quarter (8%/4)	2.00%
Number of quarters (6 yaers * 4)	24
Cash interest (4000*2.5%)	$        100
Debit Balance in Bond Discount at the time of purchase (4000-3500)	$        500

Interest payment (Credit Cash) = Face value of bond * Coupon rate per quarter = 100
Interest Expense (Debit Interest Expense) = Carrying value of Bond for previous period * 2%
Amortization of bond Discount (Credit Bond Discount) = Interest Expense - Interest payment
Debit Balance in Bond Discount = Debit Balance in Bond Discount for previous period - Amortization of bond Discount
Credit Balance in Bond Payable = Face value of bond
Carrying value of Bond = Credit Balance in Bond Payable - Debit Balance in Bond Discount
Period	Date	Interest payment	Interest Expense @ 2%	Amortization of bond Discount	Debit Balance in Bond Discount	Credit Balance in Bond Payable	Carrying value of Bond
0					$           500	$        4,000	$        3,500
1		$        100	$           70	$        (30)	$           530	$        4,000	$        3,470
2		$        100	$           69	$        (31)	$           561	$        4,000	$        3,439
3		$        100	$           69	$        (31)	$           592	$        4,000	$        3,408
4		$        100	$           68	$        (32)	$           624	$        4,000	$        3,376
5		$        100	$           68	$        (32)	$           656	$        4,000	$        3,344
6		$        100	$           67	$        (33)	$           689	$        4,000	$        3,311
7		$        100	$           66	$        (34)	$           723	$        4,000	$        3,277
8		$        100	$           66	$        (34)	$           757	$        4,000	$        3,243
9		$        100	$           65	$        (35)	$           793	$        4,000	$        3,207
10		$        100	$           64	$        (36)	$           828	$        4,000	$        3,172
11		$        100	$           63	$        (37)	$           865	$        4,000	$        3,135
12		$        100	$           63	$        (37)	$           902	$        4,000	$        3,098
13		$        100	$           62	$        (38)	$           940	$        4,000	$        3,060
14		$        100	$           61	$        (39)	$           979	$        4,000	$        3,021
15		$        100	$           60	$        (40)	$        1,019	$        4,000	$        2,981
16		$        100	$           60	$        (40)	$        1,059	$        4,000	$        2,941
17		$        100	$           59	$        (41)	$        1,100	$        4,000	$        2,900
18		$        100	$           58	$        (42)	$        1,142	$        4,000	$        2,858
19		$        100	$           57	$        (43)	$        1,185	$        4,000	$        2,815
20		$        100	$           56	$        (44)	$        1,229	$        4,000	$        2,771
21		$        100	$           55	$        (45)	$        1,273	$        4,000	$        2,727
22		$        100	$           55	$        (45)	$        1,319	$        4,000	$        2,681
23		$        100	$           54	$        (46)	$        1,365	$        4,000	$        2,635
24		$        100	$           53	$        (47)	$        1,413	$        4,000	$        2,587
How much should you sell it for (Your Answer)							$        2,587