Company Y is issuing bonds. They plan to issue 10,000, $1000 par, 6% bonds that pays...

Company Y is issuing bonds. They plan to issue 10,000, $1000 par, 6% bonds that pays semi-annual for 5 years. If the bond price is $1020, what is the market annual rate of return? (Percentage, 2 dp)

Expert Solution

Bond Amortization Schedule
Effective Interest Method
Period	Semi-Annual Interest payment ( Face Value @3% ) - A	Interest Expense (Carrying amount @ 2.77% ) -B	Amortization of Premium C = ( A-B )	Bond Premium ( Period opening Amount - C )	Carrying Amount $
0				20	1,020
1	30	28	2	18	1,018
2	30	28	2	16	1,016
3	30	28	2	15	1,015
4	30	28	2	13	1,013
5	30	28	2	11	1,011
6	30	28	2	9	1,009
7	30	28	2	7	1,007
8	30	28	2	5	1,005
9	30	28	2	2	1,002
10	30	28	2	0	1,000

The market annual rate of return is 5.54%.

ekkarill92 answered 3 years ago

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