Question

Bond Terms 8%, 20-year bond, Face Value: $500,000 Interest Payment dates, June 30 and December 31 Bond issued on 1/1/2020 Under each of the following three scenarios, CALCULATE a) Cash received at issuance b) The amount of the interest payment ) The total interest expense on the bond d)The total amount repaid at maturity Scenarios: 1) Bond issued at face 2) Bond issued at 97.25 3) Bond issued at 102.5

Answer 1

1. Bond issue at 97.25

a. cash received = 97.25% * $500,000 = $486,250

b. Amount of interest payment = 8%*$500,000* 1/2 = $20,000

c. total Interest payment = $20,000 *2*20 = $800,000

d. Total amount repaid at maturity = $500,000

2. Bond issue at 102.5

a. cash received = 102.5%*$500,000 = $512,500

b. Amount of interst payment = 8%*$500,00 * 1/2 = $20,000

c. Total amount of interest payment = $20,000*2*20 = $800,000

d. Total amoun repaid at matrurity = $500,000

Step-by-step explanation: