Kaylin has been presented with the following information about bonds issued at a discount by Riley...
Kaylin has been presented with the following information about bonds issued at a discount by Riley Corp.:
Face value: $400,000
Interest rate: 6%
Term: Five years
Cash received from bondholders: $392,000
Market interest rate: 5%
Based on this information, what is the cost of borrowing for Riley Corp.?
Homework Answers
Solution:
Cost of borrowing for Riley Corp. = Annual interest payment + Discount amortization
= ($400,000*6%) + ($8,000/5)
= $25,600
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