Question

Johnson Corporation plans to obtain financing with a $1,000,000 bond issue that has a term of 15 years. Payments will be made semi-annually.

1) If the bond payment rate is stated at 8%, and the bonds call for semi-annual payments, what is the amount of those payments?

$80,000	$800,000
$400,000	$40,000

Completely ignore number 1. Assume that the semi-annual cash payments have already been correctly computed to be $35,000. Given this number, and remembering that the face value of the bonds ($1,000,000) will be paid out at the end of the 15 years, what is the total issue price (present value) of the bonds if the market interest rate for bond issues of similar risk is 6%, compounded semi-annually? Choose from among the following factors in making your computations. (PVS=Present Value Single, and PVA=Present Value Annuity):

PVS:                         3%          6%                                         PVA:                         3%           6%

15 periods             .642        .417                                        15 periods             11.938    9.712

30 periods             .412        .174                                        30 periods             19.600    13.765

A)$756,920	B)1,098,000
C)$686,000	D)$1,036,500

Completely ignore numbers 1 and 2. Assume that the market interest rate for bond issues of similar risk is 12%, compounded semi-annually, and that the total issue price for these bonds has already been correctly calculated to be $1,145,000. Given this number, and the market rate of interest, how much interest expense will accrue and be recorded at the end of the first six-month period?

A)$68,700	B) 34,350
C)$137,400	D)$60,000

Completely ignore numbers 1 - 3. Assume that the semi-annual cash payments on the bonds are $45,000, and that the accrued interest on the bonds for the first six-month period is only $42,500. The carrying value of the bonds will change by an amount of:

A)$2,500 Increase	B)$1,500 Increase
C)$2,500 Decrease	D)$1,500 Decrease

Completely ignore numbers 1-4. Assume the total issue price for these bonds has already been correctly calculated to be $1,130,000, and that the semi-annual cash payment made at the end of the first six- month period exceeds the accrued interest expense for the period by $1,600. What is the new carrying value of the bonds?

A) $1,114.000	B) $1,128,400
C) $1,131,600	D) $1,146,000

Answer 1

Thank you.

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