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A firm sells a 30-year bond for a discount of $15,000 over its $200,000 face value....

  1. A firm sells a 30-year bond for a discount of $15,000 over its $200,000 face value. If the bond's coupon rate is 7%, and they use straight line amortization methods for all intangible assets, what is their interest expense on the bond each year?
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Answer #1

Face Value of Bonds = $200,000
Discount on Bonds = $15,000

Annual Coupon Rate = 7.00%
Annual Coupon = 7.00% * $200,000
Annual Coupon = $14,000

Time to Maturity = 30 years

Annual Amortization of Discount = Discount on Bonds / Time to Maturity
Annual Amortization of Discount = $15,000 / 30
Annual Amortization of Discount = $500

Annual Interest Expense = Annual Coupon + Annual Amortization of Discount
Annual Interest Expense = $14,000 + $500
Annual Interest Expense = $14,500

Therefore, interest expense on the bond each year is $14,500

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