Cheyenne Company sells 8% bonds having a maturity value of $2,400,000 for $2,218,040. The bonds are dated January 1, 2020, and mature January 1, 2025. Interest is payable annually on January 1.
Determine the effectiveinterest rate. (Round answer to 0 decimal places, e.g. 18%.)
The effectiveinterest rate  % 
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Set up a schedule of interest expense and discount amortization under the effectiveinterest method. (Round intermediate calculations to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 38,548.)
Schedule of Discount Amortization 


Interest 
Interest 
Discount 
Carrying 

Jan. 1, 2020  $  $  $  $  
Dec. 31, 2020  
Dec. 31, 2021  
Dec. 31, 2022  
Dec. 31, 2023  
Dec. 31, 2024 
Face Value of Bonds = $2,400,000
Issue Value of Bonds = $2,218,040
Annual Coupon Rate = 8.00%
Annual Coupon = 8.00% * $2,400,000
Annual Coupon = $192,000
Time to Maturity = 5 years
Let Effective Interest Rate be i%
$2,218,040 = $192,000 * PVA of $1 (i%, 5) + $2,400,000 * PV of $1 (i%, 5)
Using financial calculator:
N = 5
PV = 2218040
PMT = 192000
FV = 2400000
I = 10%
Effective Interest Rate = 10%
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