Question

Ch 10: Homework Help Save & Exit Submit Check my work mode: This shows what is correct or incorrect for the work you have completed so far. It does not indicate completion. Return to question Enviro Company issues 10.50%, 10-year bonds with a par value of $300,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 7.50%, which implies a selling price of 124.625. The straight-line method is used to allocate interest expense. 1. Using the implied selling price of 124.625, 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? Answer is not complete. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What total amount of bond interest expense will be recognized over the life of these bonds? Total Bond Interest Expense Over Life of Bonds: payments of Par value at maturity Total payments Les amount borrowed from part 1) Total bond interest expense < Prev 5 of 16 !! Next > The

Answer 1

Solution 1:

Cash proceeds from issue = $300,000*124.625% = $373,875

Solution 2:

Total bond interest expense Over life of bonds:
Amount Paid:
20 Payments of ($300,000*10.50%*6/12=$15750) each	$3,15,000
Par Value at maturity	$3,00,000
Total Repaid	$6,15,000
Less: Amount Borrowed	$3,73,875
Total Bond interest Expense	$2,41,125

Solution 3:

Semi annual Cash payment of interest = $15,750

Semi annual Amortization of Premium on bond = ($373875- $300000) / 20 = $3,694

Interest expense on First payment date = Cash paid - Premium amortized = $15750 - 3694 = $12,056