Question

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.

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