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. $12,000
B. $10,741
C. $10,000
D. $6,000
E. $5,386
plz use computer and plz explain with good calculations.. plz
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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