Bao Inc. issued its Class H series bonds at $10 40
Bao Inc. issued its Class H series bonds at $10,400 on 1/1/x3. Class H bonds have a 10% coupon paid semi-annually and a face value of $10,000, maturing in two years. Using the effective interest method, calculate the amount of interest expense associated with the Class H bonds reported by Bao for the period ending 12/31/x3.
A. $405.
B. $808.
C. $1,000.
参考解答
4j0***991
2024-10-27 11:44:47
Ans:B.
The periodic payment is $500 or one-half of the 10% annual coupon. The yield-to-maturity is solved for, using a financial calculator, as 3.90% semi-annually (see below). At the end of the first reporting period (Year 1), the total interest expense is $807.52 (=$405.60 + 401.92).
Periodic coupon payment
= semi-annual payment x coupon rate x face value
=0.5 x 10.0% x $10,000
= $500
Semi-annual yield-to-maturity:
N=4; PV= -$10,400; PMT =$500; FV = $10,000
Compute 1/Y = 3.90 semi-annual effective interest rate
Interest expense
= NBV of bond at end of previous period x effect interest rate
NBV t= NBV t-1 + interest expense – coupon
Interest expense = 405.60 + 401.92 = 807.52
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