Question

Consolidated enterprises issues $10 million face value,ten years bonds with a coupon rate of 7.5 percent on january 1,2009. At the time of issuance ,the market interest rate is 4.0 percent. Using the effective interest rate method of amortization,

a.the carrying value at the beginning 0f 2009 wiil be -------------------
b.The interest expense in 2009 will be-------------------
c.The carrying value on december 31, 2009 will be--------------
Chose the correct optios below for each of the blank field.
a)Greater than $12,7 millions
b)Less than $12,7 millions
c)Equal to $12.7millions
d)Equal to $0.75 millions
e)Greater than $0.75 millions
f)Less tahn $0.75 millions

Answer 1

The carrying value of the bond at the beginning of 2009 will be less than $10 million. The interest expense in 2009 will be less than $750,000. The carrying value on December 31, 2009 will be greater than $10 million.

Step-by-step explanation:

a. The carrying value at the beginning of 2009 will be less than $10 million.

b. The interest expense in 2009 will be less than $750,000.

c. The carrying value on December 31, 2009 will be greater than $10 million.