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Annapolis Company purchased a $1,000, 7%, 10-year bond at 101 and held it to maturity. The...

Annapolis Company purchased a $1,000, 7%, 10-year bond at 101 and held it to maturity. The straight line method of amortization is used for both premiums & discounts. What is the net cash received over the life of the bond investment? (all money received minus all money paid, round to nearest whole dollar)

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Answer #1

Solution:

Computation of net cash received over the life of the investment:
Face value of the bond $       1,000
Years to maturity                  10
Annual coupon rate 7%
Annual coupon receipts (1000*7%) $             70
Total coupon received over the life (70*10) $           700
Face value received at maturity $       1,000
Total cash receipts $       1,700
Less: Cash paid to purchase the bond (1000*101%) $       1,010
Net cash received over the life of the bond investment $           690

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