Question

Crosby, Inc., sells $1,000,000 general obligation bonds for 98. The interest rate on the bonds, paid...

Crosby, Inc., sells $1,000,000 general obligation bonds for 98. The interest rate on the bonds, paid quarterly, is 6 percent.


a. Calculate the amount that the company will actually receive from the sale of the bonds.

b. Calculate the amount of both the quarterly and the total annual cash interest that the company will be required to pay.

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Answer #1

(a)-The amount that the company will actually receive from the sale of the bonds.

The amount received from the sale of the bonds = $980,000 [$10,00,000 x 0.98]

(b)-The amount of quarterly and the total annual cash interest that the company will be required to pay.

Quarterly Interest

Quarterly Interest = Face Value of Bond x Coupon Rate x ¼

= $10,00,000 x 6% x ¼

= $15,000

Total annual cash interest

Total annual cash interest = Face Value x Annual Coupon Rate

= $10,00,000 x 6%

= $60,000

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