On October 1, 2009, Jack Company issued a $5,000, 6%, bond payable. The interest

Question

On October 1, 2009, Jack Company issued a $5,000, 6%, bond payable. The interest is payable annually each October 1 and the bond matures in five years. The annual accounting period for the company ends December 31. Complete the following chart and at the bottom, indicate if the bond sold at part or for a premium or discount

BOND CHART
Market interest rate 4% 6% 8%
PV of the Interest Payments

PV of the Maturity Value
PV Issue (selling) price of the bonds

Bond sold at par, discount or premium


Which scenario above is best for the company and why?

Explanation / Answer

Bonds Value $5,000 Maturity period          5 Years Marker interest rate    4% Interest Rates 4% 6% 8% Peresent Value of Single sum(FV) 0.82193 0.74726 0.68058 5,000*0.82193 5,000*0.74726 5,000*0.68058 4,109.65 3,736.30 3,402.90 PV of interest on 300 4.45182 4.21236 3.99271 300*4.45182 300*4.21236 300*3.99271 1335.54 1,263.70 1,197.81 Total: 5,445.19 5,000.00 4,600.71 Coupon Rate> Required Yield =Premium Bond Coupon rate= Required Yield ==Preice=Par Coupon rate

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