The (partial) advertisement below appeared in a newspaper:

Interest is payable on November 16 and May 16.

Required

Answer these questions about Millar Corporation’s secured debentures (bonds):

1. Suppose investors purchased these securities at 98.50 on May 16, 2020. Describe the transaction in detail, indicating who received cash, who paid cash, and how much.

2. Compute the annual cash interest payment on the Millar Corporation bonds.

3. Prepare an effective-interest amortization table for Millar Corporation’s first two payments, on November 16, 2020, and May 16, 2021. Assume the market rate at the date of issuance was 9.2 percent.

4. Compute Millar Corporation’s interest expense for the first full year ended May 16, 2021, 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 Millar Corporation issue?

Transcribed Image Text:

This announcement appears as a matter of record only. Millar Corporation, Inc. $100,000,000 9% Series E Secured Debentures due May 16, 2025 guaranteed by Millar Corporation and Company, Limited Parternship Lévesque Beaubein Geoffrion Inc. Nesbitt Burns Inc. Richardson Greenshields Toronto Dominion Wood Gundy Inc. of Canada Limited Securites Inc.