Beginning liability of the third period = liability of the second period + difference in the cash payment and the interest expense for the third period.
Liability for the first period = present value of the bond present value of the bond is computed as follows: FV = 1000 PMT = [(1000)(0.08)]/2 = 40 I/Y = 5 N = 10 Compute PV = -923
Liability for the second period = 923 + [(0.05)(923) – 40] = 923 + 6 = 929
Liability for the third period = 929 + [(0.05)(929) – 40] = 929 + 6 = 935
