Question

Sun City issues $42 million of bonds on January 1, 2021 that pay interest semiannually on June 30 and December 31. A portion of the bond amortization schedule appears below: Cash Paid Interest Expense Decrease in Carrying Value Date 01/01/2021 06/30/2021 12/31/2021 Carrying Value $50,969,130 50,863, 65e 50,753,257 $1,890,000 1,890, eee $1,783,920 1,780,287 $106, ese 109,793 Required: 1. Were the bonds issued at face amount, a discount, or a premium? Premium Discount Face amount 2. What is the original issue price of the bonds? Original price < Prev 5 of 10 Next > Po e Search

Answer 1

WORKING NOTES:
	Issue Price = Carrying Value =	$5,09,69,130
	Par value of the bonds	$4,20,00,000
	Premium Amount	$89,69,130
	Coupon rate = Half yearly = (Interest Expeses / Par value of Bonds ) X 100
	Coupon rate = Half yearly = ( $ 1,890,000 / $ 42,000,000) X 100
	Coupon rate = Half yearly =   0.045 or 4.5%
	Annual Coupon Rate = 9.0 %
SOLUTION:
	ANSWER = 1
	Answer = Option 1 =	Premium
	ANSWER = 2
	Answer = Original Issue price of the bond =	$5,09,69,130
	ANSWER = 3
	Face Amount =	$4,20,00,000
	ANSWER = 4
	Stated Annual interest rate =	9.0%
	ANSWER = 5
	Market Half yearly rate = Interest Expenses / Carrying value
	Market Half yearly rate = $ 1,783,928 / $ 50,969,130 =	$0.035
	Market Half yearly rate = int % =	3.50%
	Market Yearly rate of interst = 3. 5% X 2 =	7.00%
	Answer = 7%
	ANSWER = 6
	Interest Paid in 20 years = 20 Periods X $ 1,890,000 =	$3,78,00,000
	Answer =	$3,78,00,000