question. (20 points each) Tyche Inc. issued 4% bonds on October 1, 2018. The bo
ID: 2340042 • Letter: Q
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question. (20 points each) Tyche Inc. issued 4% bonds on October 1, 2018. The bonds have a maturity date of September 30, 2028 (10-year maturity) and a face value of $300 million. The bonds pay interest each March 31 and September 30, beginning March 31, 2019. Tyche has a December 31 year end. 1) Assume the market rate was 6% at the issue date. Using the tables attached to this exam, or using your calculator, determine the price of the bonds on the issue date (rounded to the nearest thousand). a) 162,360,000 b) 274,408,000. c) $ 255,369,000 d) $ 211,678,000. 2) Now, assume the market rate was 5% and the price of the bonds on the issue date was 276,616,000 (in other words, start with this number for this question), and that Tyche uses the effective interest method of accounting for the bond. What total interest expense would Tyche recognize for 2018? (Hint: Recording the year-end adjusting entry will help.) a) 3,457,700 b) 6,915,400 c) 5,532,320 d) $3,750,000.Explanation / Answer
1 The market rate of interest semiannually is 6%/2 = 3% Amount PV factor @3% Present value Semi-annual interest 6000000 14.87747 89264820 Maturity value 300000000 0.55368 166104000 Total 255368820 The price of the bonds rounded to nearest thousand is $255369000 Option C is correct 2 Total interest expense for 2018 = 276616000*5%/12*3= $3457700 Option A is correct
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