Question

A company issues $50,000 of 4% bonds, due in 5 years, with interest payable semiannually. Assuming a market rate of 3%, the bonds issue for $52,306. Calculate interest expense as of the first semiannual interest payment.

Answer 1

Answer:

interest payment would be $1,046.12

Explanation:

We calculate the Interest expense for the first semiannual interest payment by  constructing the Bond amortization schedule.

To construct this amortization schedule we will collect the data as follows :

PV = - $52,306

PMT = ($52,306 × 4%) ÷ 2 = $1,046.12

P/yr = 2

N = 5 × 2 = 10

YTM = 3%

FV = $52,306

Using a Financial Calculator to input the values as above, the schedule can be constructed as

BOND AMORTIZATION SCHEDULE

Period          Principle         Interest      Payment        Balance

Start                                                                                $52,306

1st                   $261.53          $784.59      $1,046.12     $52,044

Conclusion

Thus, interest payment would be $1,046.12