A discount on bonds payable: a. Occurs when a company issues bonds with a contract rate less than the market rate. b. Occurs whe
1 answer:
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Answer:
2.32%
Explanation:
The formula for bond equivalent yield is in the attachment, we use it with the values provided in this question.
First, use the discount yield to calculate the price (P) of the bond
Face value = $1,000,000
Discount yield = 2.29 or 0.0229 as a decimal
Discount yield = [ (FV - P)/P ] *(360/T)
0.0229 =[ (1,000,000 -P)/P ] *360/69
0.0229P = (1,000,000 -P )5.2174
0.0229P + 5.2174P = 5,217,391.30
Price; P = $995,628.3618
Next, plug in the numbers in the bond equivalent yield (BEY) formula;
BEY = [ (1,000,000 - 995,628.3618)/$995,628.3618 ] * 365/69
BEY = 0.02323 OR 2.32%
