Sun City issues $44 million of bonds on January 1, 2018 that pay interest semian

Question

Sun City issues $44 million of bonds on January 1, 2018 that pay interest semiannually on June 30 and December 31. Portions of the bond amortization schedule appear below Carrying Value $48,048,349 48,010,525 47,970,999 Cash Paid Interest Expense Decrease in Carrying Value Date 1/1/2018 6/30/2018 12/31/2018 2,200,000 2,200,000 2,162,176 2,160,474 37,824 39,526 Required 1. Were the bonds issued at face amount, a discount, or a premium? O Discount O Face amount O Premium 2. What is the original issue price of the bonds? riginal price 3. What is the face amount of the bonds? Face amount 4. What is the stated annual interest rate? (Hint: Be sure to provide the annual rate rather than the six month rate.) Stated annual interest rate 5. What is the market annual interest rate? (Hint: Be sure to provide the annual rate rather than the six month rate.) arket annual interest rate 6. What is the total cash paid for interest assuming the bonds mature in 20 years? Interest paid

Explanation / Answer

1) Premium

2) Original issue price = 48048349

3) Face value = 44000000

4) Annual interest rate = 2200000*100/44000000 =10%

5) Market interest rate = 2162176*100/48048349 = 9%

6) Total cash interest paid = 44000000*10%*20 = 88000000

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