Question

In: Accounting

Presley Company sells $1,000,000 general obligation bonds for 102. The interest rate on the bonds, paid...

Presley Company sells $1,000,000 general obligation bonds for 102. The interest rate on the bonds, paid quarterly, is 5 percent.

a. Calculate the amount that the company will actually receive from the sale of the bonds.

b. Calculate the amount of both the quarterly and the total annual cash interest that the company will be required to pay.

Solutions

Expert Solution

a.
Amount received on sale of bond $       10,20,000
Working:
Amount received on sale of bond = Par Value * % of par value
= $       10,00,000 * 102%
= $       10,20,000
b.
Quarterly coupon interest paid in cash = Par Value * Quarterly coupon rate
= $       10,00,000 * 5% *1/4
= $             12,500
Annual coupon interest paid in cash = Quarterly coupon interest paid in cash * Quarters in a year
= $             12,500 * 4
= $             50,000

ekkarill92 answered 2 years ago
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