Discount-Mart issues $11 million in bonds on January 1, 2021. The bonds have a seven-year term...
Discount-Mart issues $11 million in bonds on January 1, 2021.
The bonds have a seven-year term and pay interest semiannually on
June 30 and December 31 each year. Below is a partial bond
amortization schedule for the bonds:
| Date | Cash Paid | Interest Expense |
Increase in Carrying Value |
Carrying Value |
||||||||
| 01/01/2021 | $ | 9,911,149 | ||||||||||
| 06/30/2021 | $ | 440,000 | $ | 495,557 | $ | 55,557 | 9,966,706 | |||||
| 12/31/2021 | 440,000 | 498,335 | 58,335 | 10,025,041 | ||||||||
| 06/30/2022 | 440,000 | 501,252 | 61,252 | 10,086,293 | ||||||||
| 12/31/2022 | 440,000 | 504,315 | 64,315 | 10,150,608 | ||||||||
What is the stated annual rate of interest on the bonds? (Hint: Be
sure to provide the annual rate rather than the six-month rate.)
(Do not round your intermediate
calculations.)
Homework Answers
Solution:
Semiannual interest rate on bond = Cash interest paid / Face value = $440,000 / $11,000,000 = 4%
Stated annual rate of interest on bonds = 4%*2 = 8%
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Discount-Mart issues $11 million in bonds on January 1, 2021.
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help
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