Question

ABC issued callable bonds on January 1, 2018. ABC's accountant has projected the following amortization schedule from issuance until maturity: Date Cash Paid Interest Expense Increase in Carrying Value Carrying Value 1/1/2018 $194,758 6/30/2018 $7,000 $7,790 $790 195,548 12/31/2018 7,000 7,822 822 196,370 6/30/2019 7,000 7,855 855 197,225 12/31/2019 7,000 7,889 889 198,114 6/30/2020 7,000 7,925 925 199,039 12/31/2020 7,000 7,961 961 200,000 What is the annual stated interest rate on the bonds

Answer 1

7%

Step-by-step explanation:

Calculation to determine the annual stated interest rate on the bonds

Using this formula

Bonds annual stated interest rate=Cash paid/Ending carrying value*2 payments per year

Let plug in the formula

Bonds annual stated interest rate=$7,000 / $200,000 × 2 payments per year

Bonds annual stated interest rate=0.07*100

Bonds annual stated interest rate= 7%

Therefore the annual stated interest rate on the bonds is 7%