Answer:
market rate is 7.5%
Explanation:
We will work with the formulas for bonds amortization under effective rate method:
1.- Face value x rate = cash proceeds
<em>2.- Carring Value x market rate = interest expense</em>
3.- Cash proceds - interest expense = amortization
With the second formula, and the givne value we are able to solve for market rate:
carrying value at 12/31/2015 is used to calcualte the 2016 interest expense:
106,450 x market rate= 7,984
market rate = 7,984/106,450 = 0.07500 = 7.5%
carrying value at 12/31/2016 is used to calcualte the 2017 interest expense:
105,678 x market rate = 7,926 = 0.07500 = 7.5%
So, we can conclude the market rate is 7.5%
