On the first day of the reporting period, a company issues three-yr $10,000 zero-coupon bonds at $8,075. Using the effective interest method, the net book value of the bonds at the end of the first yr will be closest to: A. $8,075 B. $8,368 C. $8,660 D. $10,000
C
yea that’s what I said but it says the answer is B. I think the Stalla book is wrong. The answer B only reflects one amortizing period not 2.
I don’t know why it would not. Set the BAII to begin, 3 years, then get the YTM. Once you have the YTM, set N to 2 and presto, calculate the new PV.
my question is, how are you going about getting around the interest rate. unless otherwise stated do we assume semiannual compounding with two payments? I keep getting, 8367.94
yea that’s what I did. Alright I’ll continue on, this question was obviously wrong in the book. If the the question said the bond was issued in June then I can see how the bond could have a value of $8,368 but it clearly says the beginning of the yr
The Semi-Annual ytm = 3.63. .0368 * 8075 = 293.12 293 + 8075 = 8368 - amt of bond at mid yr 8368 * .0363 = 303.76 8368 + 303.76 = 8671 amt of bond at the end of yr 1
well JP, i mean, im using the amort schedule in the calc and im getting exactly 8368. to completely dismiss the question and say it is wrong is kinda risky… specially for me since i think im right and need to be proven wrong.
how are you getting that YTM???
pv = -$8075 n = 6 fv = 10,000 Calc I = 3.62
I’m assuming 0 coupon bonds are supposed to be calculated on a semi annual basis. so you have to go 2 periods out on the amortization schedule
okay heres what im doing, so far everything aligns with JPs answer. BUT, my end result is same so try it out and help me explain the anwer: n=6 pv=-8075 fv=10000 [2nd][i/y] c\y=p\y= 2 (treating it as a regular bond semiannual) [cpt][i/y]= 7.256 [2nd][PV] (for amort schedule) if i set P1=1 and P2=2 (covers one whole year) Bal= 8671.51… which is what you guys are getting. But why is the answer so far off C, while B is exactly the 6 months BV???
answer is wrong. This isn’t the first time I found a wrong answer in the stalla book