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IRINA_888 [86]
2 years ago
12

Legacy issues $660,000 of 5.5%, four-year bonds dated January 1, 2018, that pay interest semiannually on June 30 and December 31

. They are issued at $648,412, and their market rate is 6% at the issue date.
Required:
Determine the total bond interest expense to be recognized over the bonds' life.
Business
1 answer:
dusya [7]2 years ago
6 0

Answer:

Legacy

The total bond interest expense to be recognized over the bond's life is:

= $189,172.82

Explanation:

a) Data and Calculations:

Face value of 5.5% bonds issued = $660,000

Proceeds from the bonds issue =       648,412

Bonds discounts =                                $11,588

Interest payment = semiannually at 2.75% (5.5%/2)

Market interest rate = 6%

Effective semiannual interest rate = 3% (6%/2)

N (# of periods)  8

I/Y (Interest per year)  3

PV (Present Value)  648412

PMT (Periodic Payment)  18150

Results

FV = $982,784.82

Sum of all periodic payments = $145,200.00

Total Interest = $189,172.82

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7 0
2 years ago
Smiley Industrial Goods has $1,000 face value bonds on the market with semiannual interest payments, 13.5 years to maturity, and
Snezhnost [94]

Answer:

Annual Coupon rate =  66.56990711 / 1000 = 0.06656990711 or 6.656990711% rounded off to 6.66%

Option B is the correct answer

Explanation:

To calculate the price of the bond today, we will use the formula for the price of the bond. We assume that the interest rate provided is stated in annual terms. As the bond is a semi annual bond, the coupon payment, number of periods and semi annual YTM will be,

Coupon Payment (C) = C

Total periods (n) = 13.5 * 2 = 27

r or YTM = 0.064 * 6/12 = 0.032 or 3.2%

The formula to calculate the price of the bonds today is attached.

We will first calculate the value of semi coupon payment  made by the bond.

1023 = C * [( 1 - (1+0.032)^-27) / 0.032]  + 1000 / (1+0.032)^27

1023 = C * 17.8994796  +  427.2166529

1023 -  427.2166529  =  C * 17.8994796

595.7833471 / 17.8994796  =  C

C = 33.28495355 rounded off to 33.28

The annual coupon payment will be = 33.28495355 * 2 = 66.56990711 rounded off to 66.57

Annual Coupon rate =  66.56990711 / 1000 = 0.06656990711 or 6.656990711% rounded off to 6.66%

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