X2 issued callable bonds on January 1, 2021. The bonds pay interest annually on December 31...
X2 issued callable bonds on January 1, 2021. The bonds pay
interest annually on December 31 each year. X2's accountant has
projected the following amortization schedule from issuance until
maturity:
| Date | Cash Paid | Interest Expense |
Decrease in Carrying Value |
Carrying Value |
||||||||
| 01/01/2021 | $ | 115,806 | ||||||||||
| 12/31/2021 | $ | 6,660 | $ | 5,790 | $ | 870 | 114,936 | |||||
| 12/31/2022 | 6,660 | 5,747 | 913 | 114,023 | ||||||||
| 12/31/2023 | 6,660 | 5,701 | 959 | 113,064 | ||||||||
| 12/31/2024 | 6,660 | 5,653 | 1,007 | 112,057 | ||||||||
| 12/31/2025 | 6,660 | 5,603 | 1,057 | 111,000 | ||||||||
What is the annual stated interest rate on the bonds?
Multiple Choice
-
6%.
-
3%.
-
5%.
-
2.5%.
Homework Answers
Correct answer----------6%
Working
| Cash interest paid | $ 6,660.00 |
| Face value of bond | $ 1,11,000.00 |
| Coupon rate (6660/111000) | 6% |
The face value is given in the amortization table above. The interest in cash is paid on the face value of bond. If face value of bond is $111000 and cash interest is $6660 then stated interest rate of bond is 6% (6660/111000)
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