Question

A company issues $25750000, 7.8%, 20-year bonds to yield 8% on January 1, 2020. Interest is paid on June 30 and December 31. The proceeds from the bonds are $25240335. Using effective-interest amortization, what will the carrying value of the bonds be on the December 31, 2020 balance sheet? (Round answer to 0 decimal place, e.g. 52.)

a. $25750000

b. $25245696

c. $25266879

d. $25251276

Answer 1

d. $25251276

Semi annual ending	Beginning Carrying Value	Interest Expense	Coupon Interest	Reduction of principal	Ending Carrying Value
	a	b=a*4%	c	d=b-c	e=a-d
June 30, 2020	25240335	1009613	1004250	5363.4	25245698
December 31, 2020	25245698	1009828	1004250	5577.936	25251276
Working:
Semi annual coupon	=	25750000	*	0.039
	=	1004250