Question

QS 10-9 Straight-Line: Premium bond computations LO P3 Enviro Company issues 11.50%, 10-year bonds with a par value of $450,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 8.50%, which implies a selling price of 128.375. The straight-line method is used to allocate interest expense. 1. Using the implied selling price of 128.375. what are the issuer's cash proceeds from issuance of these bonds? 2. What total amount of bond interest expense will be recognized over the life of these bonds? 3. What is the amount of bond interest expense recorded on the first interest payment date? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Using the implied selling price of 128.375. what are the issuer's cash proceeds from issuance of these bonds? Cash proceeds $ 577,688 < Required 1 Required 2 >

Answer 1

1
Cash proceeds	577688	=450000*128.375%
2
Total bond interest expense over life of bonds:
Amount repaid:
20 payments of $25875	517500
Par value at maturity	450000
Total repayments	967500
Less amount borrowed	577688
Total bond interest expense	389812
3
Semi-annual interest	25875	=450000*11.50%*6/12
Less: Premium amortized	6384	=(577688-450000)/20
Bond interest expense	19491