COAF 4201 - DUE DATE 04/05/2018
A. Brad Limited bought listed bonds issued by Butter Limited on 1 January 2015 for $1 519 530. The details of the Butter Limited bonds are as follows:
Nominal value $1 400 000
Redemption date : 31 December 2018
Redemption amount $1 575 000 ( including a $175 000 premium)
Interest rate ( coupon rate ) of 10% per annum in arrears
Effective interest rate is 10%
The bonds are held within a portfolio that is managed with the objective of collecting both contractual cash flows from selling the assets.
Butter Limited’s financial health and ability to settle bond payments is as follows:
Year ended Financial health
$ Excepted coupon payments
$ Expected redemption
$
31 December 2016 Weak 0 (i.e. for the remainder of the term) 1 575 000
31 December 2017 Recovering 35 000 ( in 2018) 1 575 000
An analysis of the fair values and expected credit losses for these listed bonds is presented below:
Date
Fair value expected credit 12 month Lifetime
1 January 2015 1 519 530 26 250 134 400
31 December 2015 1 580 000 23 600 123 000
31 December 2016 1 200 000 96 000 242 980
31 December 2017 1 280 000 57 150 233 000
