5.6 Solution to Problem #1
Solutions
7%
PV = Par
| End of Year | Coupon Interest | Interest Expense | Amortization | Debt Balance |
|---|---|---|---|---|
| 0 | $1,000,000 | |||
| 1 | $70,000 | $70,000 | 0 | $1,000,000 |
| 2 | $70,000 | $70,000 | 0 | $1,000,000 |
| 3 | $70,000 | $70,000 | 0 | $1,000,000 |
| Totals | $210,000 | $210,000 | 0 |
Solutions
8%
PV = $70,000 (2.5771) + $1,000,000 (.7938) = $974,197
PV = $70,000 (2.5771) + $1,000,000 (.7938) = $974,197
| End of Year | Coupon Interest | Interest Expense | Amortization | Debt Balance |
|---|---|---|---|---|
| 0 | $974,197 | |||
| 1 | $70,000 | $77,936 | $7,936 | $982,133 |
| 2 | $70,000 | $78,571 | $8,571 | $990,704 |
| 3 | $70,000 | $79,256 | $9,256 | $1,000,000 |
| Totals | $210,000 | $235,763 | $25,763 |
