Question

On June 30, 2021, Singleton Computers issued 6% stated rate
bonds with a face amount of $100 million. The bonds mature on June
30, 2036 (15 years). The market rate of interest for similar bond
issues was 5% (2.5% semiannual rate). Interest is paid semiannually
(3.0%) on June 30 and December 31, beginning on December 31, 2021.
(FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of
$1) **(Use appropriate factor(s) from the tables
provided.)**

**Required:
1.** Determine the price of the bonds on June 30,
2021.

Answer #1

**1) Price of the bonds on June 30, 2021 = $
110,465,146.30**

Working:

Present value of interest | $ 62,790,877.78 |

[100,000,000*3/100*20.93029 PV annuity factor (2.5%, 15 years, semi annually interest)] | |

Present value of the notes | $ 47,674,268.52 |

[100,000,000*0.476743 PV ordinary factor (2.5%, 15 years)] | |

price of bonds |
$ 110,465,146.30 |

**2) Interest expense Singleton reports in 2021 [using the
effective interest method] = $ 2,761,628.65**

Working:

Interest Expense = Bond Price * 2.5% = $ 110,465,146.30 * 2.5% = $ 2,761,628.65

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