INTERPOLATION OF SERIAL BONDS

In January 1, 2015, bonds payable with a face value of P5,000,000 is issued, payable in five equal annual
installment every December 31 starting 2015. Stated interest rate is 10%. Effective rate is 12%. Bond issue cost
is P500,000.

Date
1/1/2015
12/31/2015
12/31/2016
12/31/2017
12/31/2018
12/31/2019

1
2
3
4
5

Installment

Balance
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
-

1,000,000
1,000,000
1,000,000
1,000,000
1,000,000

Trial at 16%
Annual
cashflow
PV Factor
1,500,000
0.862068966
1,400,000
0.743162901
1,300,000
0.640657674
1,200,000
0.552291098
1,100,000
0.476113015

10%
Interest
500,000
400,000
300,000
200,000
100,000
Issue (Market) Price
Bond issue cost
Net cash proceeds

Present Value
1,293,103.45
1,040,428.06
832,854.98
662,749.32
523,724.32
4,352,860.12

4,352,860.12 > 4,267,462.70 >

16% <
?
<

Annual
cashflow

12%
PV Factor Present Value

1,500,000
1,400,000
1,300,000
1,200,000
1,100,000

0.892857143 1,339,285.71
0.797193878 1,116,071.43
0.711780248
925,314.32
0.635518078
762,621.69
0.567426856
624,169.54
4,767,462.70
500,000.00
4,267,462.70

Trial at 17%
Annual
cashflow
PV Factor Present Value
1,500,000
0.854700855 1,282,051.28
1,400,000
0.730513551 1,022,718.97
1,300,000
0.624370556
811,681.72
1,200,000
0.533650048
640,380.06
1,100,000
0.456111152
501,722.27
4,258,554.30
4,258,554.30
17%

Difference between PV using 16 and net proceeds

Difference between PV using 16 and 17
Ratio

85,397.42
94,305.82
0.905537131
16
16.90553713

Effective interest rate

16.905537131%
Interest
Interest
Payment
Expense

Amortization

721,437.49
589,817.32
452,851.58
309,636.59
158,794.32 *

221,437.49
189,817.32
152,851.58
109,636.59
58,794.32

Date
Installment
1/1/2015
12/31/2015
1,000,000
500,000
12/31/2016
1,000,000
400,000
12/31/2017
1,000,000
300,000
12/31/2018
1,000,000
200,000
12/31/2019
1,000,000
100,000
*Amount adjusted due to rounding off

Balance
4,267,462.70
3,488,900.19
2,678,717.51
1,831,569.09
941,205.69
0.00