Question

On June 30, 2018, Singleton Computers issued 8% stated rate bonds with a face amount of...

On June 30, 2018, Singleton Computers issued 8% stated rate bonds with a face amount of $100 million. The bonds mature on June 30, 2033 (15 years). The market rate of interest for similar bond issues was 6% (3.0% semiannual rate). Interest is paid semiannually (4.0%) on June 30 and December 31, beginning on December 31, 2018. (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, 2018.
2. Calculate the interest expense Singleton reports in 2018 for these bonds using the effective interest method.

Homework Answers

Answer #1
Bond characterstics Amount
1-a) Principal 100,000,000
interest        4,000,000
Market interest rate 3%
periods to maturity 30
issue price 119,600,760
Calculation of bond issue price
Where
i= 3.00%
t= 30
principal * PV of $1 at 3% for 30 yrs =
100,000,000 * 0.41199        = 41199000
interest * PV of ordinary annuity at 3%=
4000000 * 19.60044 = 78401760
bond issue price 119600760
1-b) interest expense = 119600760*3%= 3588023
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