The (partial) advertisement below appeared in the Financial Post:

Interest is payable on November 16 and May 16.
Required
Answer these questions about Gaz Métropolitain's secured debentures (bonds):
1. Suppose investors purchased these securities at 98.50 on May 16, 2017. Describe the transaction in detail, indicating who received cash, who paid cash, and how much.
2. Compute the annual cash interest payment on the Gaz Métropolitain bonds.
3. Prepare an effective-interest amortization table for Gaz Métropolitain's first two payments, on November 16, 2017, and May 16, 2018. Assume the market rate at the date of issuance was 9.2 percent.
4. Compute Gaz Métropolitain's interest expense for the first full year ended May 16, 2018, under the effective-interest amortization method.
5. Another company's issue of unsecured bonds for $20,000,000 was issued the same day; it bore an interest rate of 12 percent. Why was the rate so much higher for this issue than for the Gaz Métropolitain issue?

Transcribed Image Text:

This announcement appears as a matter of record only Gaz J Métropolitain, inc. $100,000,000 9% Series E Secured Debentures due May 16, 2025 guaranteed by Gaz Métropolitain and Company, Limited Partnership Lévesque Beaubien Geoffrion Inc Nesbitt Burns Inc. Richardson Greenshields of Canada Limited Toronto Dominion Securities Inc. Wood Gundy Inc. May 1995