A company sells a 5 Year bond with a face value of $100,000 at 102. The...
A company sells a 5 Year bond with a face value of $100,000 at
102. The rate on the bond is 10%, and interest is paid annually.
The total cost of borrowing (including TOTAL interest AND any
premium or discount) would be:
A) 50,000
B) 52,000
C) 48,000
D) 10,000
Homework Answers
Solution:
Total cash paid during the life of bond = Principal + Intersst = $100000 + ($100000*10%*5) = $150,000
Total cash received on issue of bond = $100000*102% = $102,000
Total cost of bortowings = $150000 - $102000 = $48,000
Hence option "C" is correct.
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