A company issues 10%, 20-year bonds with a par value of $760,000. The current ma

Question

A company issues 10%, 20-year bonds with a par value of $760,000. The current market rate is 9%. The amount of interest owed to the bondholders for each semiannual interest payment is:

$68,400.
$76,000.
$380,000.
$38,000.
$34,200.


A company has bonds outstanding with a par value of $100,000. The unamortized discount on these bonds is $4,500. The company retired these bonds by buying them on the open market at 97. What is the gain or loss on this retirement?


$3,000 loss.
$1,500 gain.
$0 gain or loss.
$3,000 gain.
$1,500 loss.

Explanation / Answer

Whatever the market rate is, it doesn't matter. Company has to pay the amount listed on the bond, which is the 10% of $760,000 annually. So the first answer is $76,000 After retired, company received $100,000 - $4,500 = $95,500 For each 100-par bond company purchase later, it cost 97, which means 97% of its par. In total, it cost company = 100,000 * 97% = 97,000 There a loss of 97000-95500 = $1,500!

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