Quiz 8

1.0. Parker Corp. issued a 5 year semi-annual bond with a face value (par value) of $100,000 on Jan 1, 2010. The proceeds from this bond issue amounted to $92,641. On June 30, 2010 Parker made the following journal entry:

Interest expense $5,558 Cash $5,000 Discount on bond 558 a. Determine the annualized coupon rate of the bond. b. Determine the annualized market rate (discount rate) of the bond. c. Provide the journal on June 30, 2010 if the firm used the straight line method.

2.0 Ramsey Corp. issued $1,000,000 of 10% bond to yield 8% (market rate). The bond was issued on 1/1/93 to provide semi-annual payments and expected to mature in 5 years. The semi-annual payments are to be made every June 30 and December 31.

a) Calculate the cash proceeds (price) of this bond on 1/1/93.

b) Determine the interest expense recognized by Ramsey on 6/30/93 and 12/31/93.

c) Determine the book value (or carrying value) of the bond on 1/1/96, i.e. after six semi-annual payments.

d) Calculate the total interest expense paid by Ramsey if it held the bond to maturity.

e) Assume that the bonds are retired after 3 years ( i.e., on 1/1/96) for 102 of the par value. Calculate the gain or loss associated with this debt retirement.

f) A second $100,000 semi-annual bond was issued by Ramsey Corp on 7/1/93 for a cash proceeds of $92,976. The journal entry provided by Ramsey on 12/31/93 is given as follows:

Interest expense $6,508 Discount or B/P 508 Cash 6,000

i) Determine the annualized coupon rate of the bond. ii) Determine the annualized yield rate of the bond.

3.0 Hillman Inc sells a 8%,10 year bond for a $150,000 premium. The bond yields 6% Determine the face value of the bond.

4.0 Stratus Inc is selling a $2 million, 8%, 5 year bond for a discount of $154,435. Find the yield rate.