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Question & Answer: Assume Kelly Corporation uses the effective interest rate method for amortizing bond premiums an…..

Assume Kelly Corporation uses the effective interest rate method for amortizing bond premiums and discounts Kelly Corporation issued bonds on January 1, Year1. The bonds have a face value of $121000 and mature in 15 years. The stated interest rate is 9%. The market rate at date of issue was 7%. The bond pays interest annually on December 31. How much interest will the bond pay on December 31, Year1? What was the issue price of the bond? (Please round to the nearest dollar)

Assume Kelly Corporation uses the effective interest rate method for amortizing bond premiums and discounts. Kelly Corporation issued bonds on January 1, Year1. The bonds have a face value of $121000 and mature in 15 years. The stated interest rate is 9%. The market rate at date of issue was 7%. The bond pays interest annually on December 31. How much interest will the bond pay on December 31, Year1? What was the issue price of the bond? (Please round to the nearest dollar)

Expert Answer

 

Interest on December 31 = 121000*9%= 10890
2
Amount PV factor 7% Present value
Interest 10890 9.10791 99185
Principal 121000 0.36245 43856
Issue price 143041
Issue price of the bond = $143041(Rounded off)
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