Commonwealth Bank has $400,000 of 9% debenture bonds outstanding

Commonwealth Bank has $400,000 of 9% debenture bonds outstanding. The bonds were issued at 104 in 2010 and mature in 2030.


1. How much cash did Commonwealth Bank receive when it issued these bonds?

2. How much cash in total will Commonwealth Bank pay the bondholders through the maturity date of the bonds?

3. Take the difference between your answers to Requirements 1 and 2. This difference represents Commonwealth Banks total interest expense over the life of the bonds.

4. Compute Commonwealth Banks annual interest expense by the straight-line amortization method. Multiply this amount by 20. Your 20-year total should be the same as your answer to Requirement 3.

Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...