Enviro Company issues 8%, 10-year bonds with a par value of $340,000 and semiann
ID: 2465970 • Letter: E
Question
Enviro Company issues 8%, 10-year bonds with a par value of $340,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 10%, which implies a selling price of 87 12. The straight-line method is used to allocate interest expense.
Using the implied selling price of 87 ½, what are the issuer's cash proceeds from issuance of these bonds?
Enviro Company issues 8%, 10-year bonds with a par value of $340,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 10%, which implies a selling price of 87 12. The straight-line method is used to allocate interest expense.
Explanation / Answer
issuer's cash proceeds from issuance of these bonds
= Face value* Implied selling price
=340000*87.5%
= $297500
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