Question

Bonita Company sells 8% bonds having a maturity value of $2,290,000 for $2.116.380. The bonds are dated January 1, 2020, and mature January 1, 2025. Interest is payable annually on January 1. Your answer is incorrect. Determine the effective-interest rate. (Round answer to decimal places, eg. 18%.) The effective interest rate eTextbook and Media Assistance Used eTextbook

I'm using the formula and I got 8% but it seems that is wrong because when i do my calculations under the effective interest method for each period I dont end up with 2,290,000 at the end but Im 99.9% sure the effective interest rate is wrong, can someone please calculate this for me and tell me how you did it. thank you in advance.

Answer 1

	Effective annual Interest rate	=	10%
	Workings:
	Initial Investment (P.V)	=	$ 21,16,380
	Face Value	=	$ 22,90,000
	Interest rate (r)	=	8%
	PMT ($2290000 X 8%)	=	$   1,83,200
	Period (n)	=	5	year
	Under continuous compounding:
	Effective annual Interest rate	=	=Rate(5,183200,-2116380,2290000,0)
		=	10%
	Proof:
Year	Cash Paid	Interest
	(A)	(B)	(C) = (B) - (A)
				$                           21,16,380
2020	$                                                1,83,200	$ 2,11,638.0	$   28,438.0	$                           21,44,818
2021	$                                                1,83,200	$ 2,14,481.8	$   31,281.8	$                           21,76,100
2022	$                                                1,83,200	$ 2,17,610.0	$   34,410.0	$                           22,10,510
2023	$                                                1,83,200	$ 2,21,051.0	$   37,851.0	$                           22,48,361
2024	$                                                1,83,200	$ 2,24,836.1	$   41,636.1	$                           22,89,997