G Holdings Ltd. has a large investment in corporate bonds. Suppose G Holdings Ltd. buys $6,000,000 of

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G Holdings Ltd. has a large investment in corporate bonds. Suppose G Holdings Ltd. buys $6,000,000 of CN Railway bonds at a price of 98. The CN Railway bonds pay cash interest at the annual rate of 2.5 percent and mature in 10 years. G Holdings Ltd. plans to hold the bonds until maturity.

Required

1. How much did G Holdings Ltd. pay to purchase the bond investment? How much will G Holdings Ltd. collect when the bond investment matures?

2. How much cash interest will G Holdings Ltd. receive each year from CN Railway?

3. Will G Holdings Ltd.’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 G Holdings Ltd.’s annual interest on this bond investment. Use the straight-line method to amortize the discount on the investment.

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