please can someone help me i am stuck on this question i am a bit confused about

Question

please can someone help me i am stuck on this question i am a bit confused about how to get the amount made per payment Enviro Company issues 7.50%, 10-year bonds with a par value of $370,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 4.50%, which implies a selling price of 126 3/8. The straight-line method is used to allocate interest expense. 1. Using the implied selling price of 126 3/8. what are the issuer’s cash proceeds from issuance of these bonds? What total amount of bond interest expense will be recognized over the life of these bonds? What is the amount of bond interest expense recorded on the first interest payment date?

Explanation / Answer

1. Issue's cash proceeds = $459,750.

Working:

2.

Premium received on bonds = $459,750 - $370,000 = $89,750

Interest payment over the bonds term = 7.5% of 370,000 for 10 years = $277,500.

Ineterst expense recognized over the life of the bonds = $277,500 - $89,750 = $187,750

3.

Bond interest expense recorded for the first instalment = $9,388 ($13,875 - $4,487)

Cash payment - Premium amortized = $13,875 - $89,750 / 20 = $13,875 - $4487

Par value of the bond A 370000 Coupon rate B 7.50% Market rate C 4.50% Interest payment D Semi annual Interest amount (A x C / 2) E 13875 PV of $1 received after 10 years at 3.5% F 0.643927682 PV of an annuity received for 20 periods at 2.25% G 15.9637 PV of the face value of the bond (A x F) H 238253 PV of the interest payment (E x G) I 221496 Price of the bond J 459750

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.