ACTG 2200 Lecture Notes - Lecture 7: Authorised Capital, Interest Expense, Net Income

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Bonds
1. Money owed goes up each year
a. If you owe 100,000 after X years
b. Can take off Y% every year
c. 100,000 has a value today
2. Interest paid on every year
a. If 100,000 after X years
b. Pay Y% on top every year
c. Every % paid on the year has a value today
Need to Know:
Term
o Find on sheet
Compounding period
I (interest rate)
o Find on sheet
o AKA: bond rate, coupon rate, stated rate
Principal
EX:
Term: 5
Compounding period: N = 5
I: 6%
Principal: 100,000
- 6% on principal = $6,000 each year
1. I and N (sheet 1) = .74726
a. .74726 * 100,000 = $74,726
2. I and N (sheet 2) = 4.21236
a. 4.21236 * 6,000 = $25,274
- $74,726 + $25,274 = $100,000
EX:
Face Value: $250,000
Term: 5
Compounding period: N = 10
I: 7%
Payment: $17,500
o = 250,000 * .07
1. Present Value (PV) of 250,000 for 10 periods (table 2)
a. 250,000 * 0.50835 = $127,087.50
2. PV of 250,000 for 10 periods (table 4)
a. 17,500 * 7.02358 = $122,912.65
- $127,087.50 + $122,912.65 = $250,000
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