$5m * 0.05 = $250,000 interest paid semi-annually
The interest accrued each period will depend on the method of amortization. Effective interest rate method results in a different amount each semi-annual period. The straight-line method...since the bonds will sell at a premium b/c coupon rate > market rate...
PV - par = the premium
Premium / 20 = the amortized amount per semi-annual period....
subtract that amount from the $250,000 coupon and that total will be the amount the company will EXPENSE each period (interest expense).
The bond was Issued March 1, 2014 at $5,000,000 at 10% term corporate bonds, Due March 1, 2024.
Interest Payable is March 1 and September 1 every year.
When the bonds were issued the market rate for similar bonds was 8%.
Q1. What is the interest rate that will be paid every March 1 and September 1, beginning sept. 1st 2014?
Do I take 5,000,000 * .10 = 500,000 500,000/12 and have
March 1st = 83,333.33
sept 1st= 291,666.67
Or do I find the Present Value of an Annuity using a table at 5%,20? What would I do with this number then?
