Exam 15: Bond Valuation and Sinking Funds

A manufacturing company is planning a $600 000 expansion 6 years from now. By that time the company intends to accumulate 75% of the cost of the expansion by making payments into a sinking fund at the beginning of each of the next six years. Interest paid by the fund is 7% compounded annually. a) Calculate the size of annual payment into the fund. b) Calculate the total amount deposited into the fund. c) Calculate the amount of interest.

A $100 000, 4% bond with semi-annual coupons is redeemable at 108. What is the purchase price to yield 5.5% compounded semi-annually seven years before maturity?

Cranberry Portage Credit Union borrowed $425 000.00 at 6% compounded semi-annually from League Central to build a sports complex. The loan agreement requires payment of interest at the end of every six months. In addition, the credit union is to make equal payments into a sinking fund so that the principal can be retired in total after 11 years. Interest earned by the fund is 4.14% compounded semi-annually. a) What is the semi-annual interest payment on the debt? b) What is the size of the semi-annual deposits into the sinking fund? c) What is the total annual cost of the debt? d) What is the interest earned by the fund in the 18th payment interval? e) What is the book value of the debt after 6 years? f) Prepare a partial sinking fund schedule showing details, including the book value of the debt, for the first three payments, the last three payments, and totals.

What is the amount of interest earned in the 33rd semi-annual deposit interval of a sinking fund that is set up to pay back a debt of $220000 over 19 years? The fund earns 4.62% compounded semi-annually and the deposits are made semi-annually.

To redeem a $10 000.00 promissory note due in 12 years, SEJE has set up a sinking fund earning 8% compounded semi-annually. Equal deposits are made at the beginning of every six months. What is the size of the semi-annual deposits?

A $100 000, 8.75% bond with interest payable annually is redeemable at 103 in four years. What is the purchase price to yield 7% compounded quarterly?

What is the total increase in the 71st monthly deposit interval of a sinking fund that is for 14 years and the sinking fund earn 4.8% compounded monthly? The original principal was $250000.

A $200 000, 6% bond with semi-annual coupons redeemable at par March 1, 2009, was purchased on November 15, 1999, to yield 5% compounded semi-annually. What was the purchase price of the bond?

A $40 000.00, 5% bond with semi-annual coupons redeemable at par in 14 years is purchased to yield 7% compounded semi-annually. What is the gain or loss if the bond is sold three years before maturity at 99.75?

Twenty $5 000 bonds redeemable at par bearing 6% coupons payable quarterly are sold eight years before maturity to yield 5.5% compounded annually. What is the purchase price of the bonds?

Waterton Motel made equal payments at the end of every six months into a sinking fund for 11 years. If the fund had a balance of $100 000.00 after 11 years and interest is 5.4% compounded semi-annually, what was the accumulated balance in the fund after seven years?

A $1 000, 7% bond redeemable at par in eight years bears coupons payable annually. Compute the premium or discount and the purchase price if the yield, compounded annually, is: a) 6.5% b) 7.5% c) 8.5%

Phoenix Corporation is depositing equal sums of money at the beginning of every three months into a sinking fund to redeem a $165 000.00 promissory note due 11 years from now. Interest earned by the fund is 4.6% compounded quarterly. a) Determine the size of the quarterly payments into the sinking fund. b) Compute the balance in the fund after 6 years. c) Compute the increase in the fund during the 25th payment interval. d) Construct a partial sinking fund schedule showing details of the first three deposits, the last three deposits, and totals.

A $250 000, 7% bond redeemable at par with interest payable semi-annually is bought 4 years before maturity. Determine the premium or discount and the purchase price if the bond is purchased to yield: a) 6.5% compounded semi-annually b) 8% compounded semi-annually

A $200 000.00, 6% bond with semi-annual coupons is redeemable at par. What is the purchase price of the bond six years before maturity to yield 8% compounded semi-annually?

Ten $10 000, 4% bonds with interest payable semi-annually and redeemable at par are purchased 18.5 years before maturity. Find the premium or discount and the purchase price if the bonds are bought to yield 7%.

A $10000 bond bearing interest at 6% payable semi-annually redeemable at par on March 1, 2002, was purchased on September 30, 1996, to yield 5% compounded semi-annually. Determine the purchase price.

What is the amount of premium/discount amortized or accumulated in the first payment interval for a bond that has a face value of $6000 and it sold for $5700? The coupon rate is 9% compounded semi-annually and the market rate is 10.1% compounded semi-annually.

A $50 000.00, 8% bond with quarterly coupons redeemable at par is purchased five years before maturity to yield 4% compounded semi-annually. Determine the premium or discount.

A 50 000 bond that pays 5% semi-annually is redeemable at par on July 15, 2025.It is quoted at 97.5 on December 2, 2013. Determine the yield rate.