Question

Taylor Company issues bonds with a par value of $800,000 on their issue date at a market price of 91.9. The bonds mature in 5 years and pay 6% annual interest in semiannual payments. On the issue date, the market rate of interest (annual) is 8%. Compute the total interest expense for Taylor Company over the life of the bonds.

Answer 1

Answer:

$393,198

Explanation:

Bond Repayments (Coupons) include a capital payment and a finance charge (interest). These can only be separated in by constructing an amortization schedule.

Set the financial calculator as :

PV = - $919,000

FV = $800,000

PMT = ($800,000 x 6%) ÷ 2 = $24,000

P/YR = 2

N = 5 x 2 = 10

I/YR = 8 %

Thus

the total interest expense for Taylor Company over the life of the bonds is $393,198