Question: The Davis Group acquired $ 4 , 5 0 0 , 0 0 0 par value, 4 % , 2 0 - year bonds on

The Davis Group acquired $

4, 500, 000

par value,

4 %, 20 -

year bonds on their date of issue, January

1

of the current year. The market rate at the time of issue was

6 %,

and interest is paid annually on December

31 .

Davis will use the effective interest rate method to account for this investment. Davis intends to hold the investment until the bonds mature, and has the ability to do so

.

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