A local firm issues two bond as follows: Bond A $6,000,000 par value with an 5%
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Question:
A local firm issues two bond as follows:
Bond A $6,000,000 par value with an 5% coupon rate. The yield-to-maturity on bonds at the time that this bond is issued is 12%. The bond has a term of 10 years.
Bond B $70,000,000 par value bond with an 12% coupon rate. The yield-to-maturity on bonds at the time that this bond is issued is 13%. The bond has a term of 10 years.
a. What is the price of Bond A?
b. What is the general journal entry to record the issuance of Bond A?
c. What is the price of Bond B?
d. What is the general journal entry to record the issuance of Bond B?
e. Does bond discount increase or decrease the total amount of interest expense that will be recognized in future years? Provide an explanation to justify your answer.
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