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    Bonds: calculate issue price and amortize premium

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    Question: On January 1, 2009, Company A issued $60 million face amount of 20-year, 14% stated rate bonds when market interest rates were 16%. The bonds pay interest semiannually each June 30 and Dec 31 and mature on Dec 31, 2028.

    Using the present value table, calculate the proceeds of Company A's bonds on Jan.1, 2009, assuming that the bonds were sold to provide a market rate of return to the investor.

    Assume instead that the proceeds were $62,000,000. Use the horizontal model to record the payment of semiannual interest and the related premuim amortization on June 30, 2009, assuming that the premuium of $2,000,000 is amortized on a straight line basis.

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    Solution Preview

    Question: On January 1, 2009, Company A issued $60 million face amount of 20-year, 14% stated rate bonds when market interest rates were 16%. The bonds pay interest semiannually each June 30 and Dec 31 and mature on Dec 31, 2028.

    Using the present value table, calculate the proceeds of Company A's bonds on Jan.1, 2009, assuming that the bonds ...

    Solution Summary

    This solution is comprised of a detailed explanation to calculate the proceeds of Company A's bonds on Jan.1, 2009, assuming that the bonds were sold to provide a market rate of return to the investor.

    $2.19

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