On July 1, 2016, $7.0 million face amount of 8%, 12-year bonds were issued. The

Question

On July 1, 2016, $7.0 million face amount of 8%, 12-year bonds were issued. The bonds pay interest on an annual basis on June 30 each year. The market interest rates were slightly higher than 8% when the bonds were sold.

Required:

a. How much interest will be paid annually on these bonds?

b. Were the bonds issued at a premium or discount? Premium Discount

c. Will the annual interest expense on these bonds be more than, equal to, or less than the amount of interest paid each year? More than Equal to or

Explanation / Answer

a Annual interest = 7000000*8%= $560000 b Discount c More than

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