USE THE FOLLOWING INFORMATION FOR THE NEXT (3) QUESTIONS Discount-Mart issued te

Question

USE THE FOLLOWING INFORMATION FOR THE NEXT (3) QUESTIONS Discount-Mart issued ten thousand $1,000 bonds on January 1, 2013. The bonds have a 10-year term and pay interest semiannually This is the partial bond amortization schedule for the first three payments of the bond interest. Payment Cash Effective Decrease in Outstanding Interest Balance Balance 300,000 345,639 300,000 347,464 300,000 349.363 300,000 8,640,967 45,639 8,686,606 47,4648.734,070 49,363 8,783,433 What is the stated annual rate of interest on the bonds? 3% o 4% 6% 8% QUESTION 9 What is the effective annual rate of interest on the bonds? 3% o 4% 6% 8%

Explanation / Answer

1 Stated annual rate of interest = 300000/10000000*2= 6% 2 Effective annual rate of interest = 345639/8640967*2=8% 3 Interest expense=349363+(8783433*8%/2)= $700700

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