. Gears Inc. issued $10 million par value of bonds in 20X7 with an annual coupon...
Homework Answers
Answer:
Correct answer is:
D. $7,500,000
Explanation:
Par value = $10,000,000
Annual coupon amount =10000000 * 8% = $800,000
Issue price = $1050
Value of issues = 10000000 * 1050/1000 = $10,500,000
Maturity = 10 years
To calculate yield%, we will use RATE function of excel:
= RATE (nper, pmt, pv, fv,type)
= RATE (10, 800000, -10500000, 10000000, 0)
= 7.27891%
Below is the bond amortization schedule:
As calculated above:
Total interest cost = $7,500,000
As such option D is correct and other options A, B and C are incorrect.
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