North Mark (NM) owns vast amounts of corporate bonds. Suppose that on June 30, 2012, NM buys $800,000 of CitiSide bonds at a price of 102. The CitiSide bonds pay cash interest at the annual rate of 7% and mature at the end of five years.
1. How much did NM pay to purchase the bond investment? How much will NM collect when the bond investment matures?
2. How much cash interest will NM receive each year from CitiSide?
3. Will NM’s annual interest revenue on the bond investment be more or less than the amount of cash interest received each year? Give your reason.
4. Compute NM’s annual interest revenue on this bond investment. Use the straight-line method to amortize the investment.