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Chapter 12: Q4SE_1 (page 656)

Bond prices depend on the market rate of interest, stated rate ofinterest,and time.

Requirements

1. Compute the price of the following 8% bonds of Country Telecom.

a. \(100,000 issued at 75.25

b. \)100,000 issued at 103.50

c. \(100,000 issued at 94.50

d. \)100,000 issued at 103.25

2. Which bond will Country Telecom have to pay the most to retire at maturity?Explain your answer.

Short Answer

Expert verified

Answer:

(a) $75,250 (b) $103,500 (c) $94,500 (d) $103,250

Step by step solution

01

Definition of bonds

Bonds are the loans issued by the company to the investors on which regularinterest payment are made by the company.

02

Price of the bonds

a. In this case, the bonds are issued at a discount

PriceofBonds=Facevalueofbond×rate=$100,000×75.25%=$75,250

b. In this case, the bonds are issued at a premium

PriceofBonds=Facevalueofbond×rate=$100,000×103.50%=$103,500

c. In this case, the bonds are issued at a discount

PriceofBonds=Facevalueofbond×rate=$100,000×94.50%=$94,500

d. In this case, the bonds are issued at a premium

PriceofBonds=Facevalueofbond×rate=$100,000×103.25%=$103,250

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Most popular questions from this chapter

Determining bond amounts

Savvy Drive-Ins borrowed money by issuing $3,500,000 of 9% bonds payable

at 99.5. Interest is paid semiannually.

Requirements

1. How much cash did Savvy receive when it issued the bonds payable?

2. How much must Savvy pay back at maturity?

3. How much cash interest will Savvy pay each six months?

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Using the effective-interest amortization method

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1. Prepare an amortization table using the effective interest amortization method for

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1. Journalize the mortgage payable issuance on January 1, 2018.

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Determining bond prices and interest expense

Jones Company is planning to issue $490,000 of 9%, five-year bonds payable to

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1. Answer the following questions:

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