On January 1, 2018, a corporation issued a $100,000, 5-year maturity, 10% bond. The interest is...
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On January 1, 2018, a corporation issued a $100,000, 5-year maturity, 10% bond. The interest is payable semi- annually on June 30 and December 31. The market interest rate is 10% at issuance. What is the interest expense for the year ending December 31, 2018?
A. $12,000B. $10,741
C. $10,000
D. $6,000
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E. $5,386
plz use computer and plz explain with good calculations.. plz
Homework Answers
C. $10,000
When coupon rate and market rate is same, price of bond is equal to its par value.So, coupon interest paid for the year is equal to interest expense for the year.
| Step-1:Calculation of Issued proceeds from bond | |||||||
| Issued proceeds | =-PV(rate,nper,pmt,fv) | Where, | |||||
| = $ 1,00,000.00 | rate | = | 5% | ||||
| nper | = | 10 | |||||
| pmt | = | $ 5,000 | |||||
| fv | = | $ 1,00,000 | |||||
| Step-2:Calculation of interest expense for year ended 2018 | |||||||
| Interest for first half | = | 100000*5% | = | $ 5,000 | |||
| Interest for second half | = | 100000*5% | = | $ 5,000 | |||
| Total | $ 10,000 | ||||||
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