Discount-Mart issues $12 million in bonds on January 1, 2018. The bonds have a e

Question

Discount-Mart issues $12 million in bonds on January 1, 2018. The bonds have a eight-year term and pay interest semiannually on June 30 and December 31 each year. Below is a partial bond amortization schedule the bonds: Carrying Interest Expense Increase in Carrying Value Date Cash Paid Value $720,000 20,000 720,000 $760,648 63.494 766,538 769,796 $40,648 43,494 46,538 49.796 $10,866,402 10,907050 10,950,544 0,997,082 11,046,878 6/30/18 12/3118 1213/19 What is the market annual rate of interest on the bonds? (Hint: Be sure to provide the annual rate rather than the six month rate.) (Do not round your intermediate calculations.) 13%. 12%. 6%. 14%.

Explanation / Answer

Market annual rate of interest=(760648/10866402)*2= 14% Option 4 is correct

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