On January 1, 2014, DeLuca Company issued 5-year bonds in the amou,nt of $90,000

Question

On January 1, 2014, DeLuca Company issued 5-year bonds in the amou,nt of $90,000. The bonds have a stated annual rate of interest of 10%, compounded semiannually. The market rate on January 1 for similar bonds was 12%. The bonds pay interest on June 30 and December 31 of each of the five years.

Required:

1.         Compute the interest payments on these bonds.

2.         Compute the selling price of these bonds.

3.         Determine whether the bonds sold at a discount or a premium.

4.         Determine the total interest expense on these bonds.

5.         Compute interest expense for the first six months of 2012.

6.         Compute the selling price of these same bonds if the market rate had         been 8%.

Explanation / Answer

1 Interest payment 4500 2 SP of bonds 92225 3 Bonds are sold at discount because at market rate interest would be higher resulting in higher pv 4 PV of Total interest expense 27651 5 4500 6 94769.36267

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