Question

DeKay Dental Supplies issued $10,000 of 20-year bonds on January 1, 2021. The bonds pay interest semiannually. This is a partial bond amortization schedule for the bonds.
Payment Cash Effective interest Decrease in Balance Outstanding Balance
9,080
1 400 409 9 9,089
2 400 409 9 9,089
3 400 409 9 9,107
4 400 410 10 9117

Requied:
What is the stated annual rate of interest on the bonds?

Answer 1

Answer:

8%

Explanation:

Calculation to determine the stated annual rate of interest on the bonds

First step is to calculate Semi annual coupon rate

Semi annual coupon rate= 400 ÷ $10,000

Semi annual coupon rate= 4%

Now let determine the Annual rate of interest

Annual rate of interest= 4% × 2 (Semiannually)

Annual rate of interest= 8%

Therefore the stated annual rate of interest on the bonds is 8%