US Steel issues a $2,000,000 bond at 10% for 8 years. The market interest rate i

Question

US Steel issues a $2,000,000 bond at 10% for 8 years. The market interest rate is 9%.

Required:

What is the issue price of these bonds and the bond discount or premium?

Assume that US Steel uses the effective interest method to amortize the bond discount or premium for the annual interest payments, what is the interest expense and the amount of cash paid the second interest payment?

NOTE: Be sure to show all your calculations. This has the possibility of partial credit. Incorrect answers without calculations will automatically result in zero points.

Explanation / Answer

  

interest expense 189059

cash paid =200000

issue price of these bonds assuming par value 1000 Interest Payment 100 5.53482 553.48 Maturity Value 1000 0.50187 501.87 issue price of these bonds 1055.35

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