c. Explain why the market paiu . Three different bond issuances are listed here

Question

c. Explain why the market paiu . Three different bond issuances are listed here with interest payments made semiannually: Effective Interest Rate Stated Interest Rate 6% Life 10 years 10 years Bond Issuance Face Value $100,000 $400,000 8 6% $600,000 6 5 years a. Compute the proceeds of each bond issuance. b. For each bond issuance, indicate whether the balance sheet value of the bond liability will increase, decrease, or remain constant over the life of the bond. c. For each bond issuance, indicate whether the interest expense recognized each period will increase. decrease, or remain constant over the life of the bond.

Explanation / Answer

Part a Bond A Bond B Bond C FV 100000 FV 400000 FV 600000 PMT 3000 (100000 x 6%/2) PMT 16000 (400000 x 8%/2) PMT 18000 (600000 x 6%/2) Rate 3% (6%/2) Rate 3% (6%/2) Rate 4% (8%/2) NPER 20 (10 x 2) NPER 20 (10 x 2) NPER 10 (5 x 2) PV(Proceed) ($100,000.00) PV(Proceed) ($459,509.90) PV(Proceed) ($551,334.63) =PV(3%,20,3000,100000) =PV(3%,20,16000,400000) =PV(4%,10,18000,600000) Part b Remain the same, since issued at par Decrease , since issued at premium Increase since issued at discount Part c Remain constant Decrease Increase Premium amortization decreases the Discount amortization increases the balance sheet liability, and resulting balance sheet liability, and resulting decrease interest expense increase interest expense.

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.