Answered: f 15-year notes with a coupon rate of…

f 15-year notes with a coupon rate of 7%, payable semi-annually. The market rate of interest on the issuance date was 8%. What is the carrying value of the bonds at the end of the second year?

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 4EA: On January 1, 2018, Wawatosa Inc. issued 5-year bonds with a face value of $200,000 and a stated...

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Concept explainers

Bond Valuation

Bond valuation are the notes issued by the corporation to raise long-term funds for the business. The corporations are required to pay the interest on such liabilities at a specified rate of interest (termed as coupon rate) at specified dates which may be on semi-annual or annual basis. These interest payments may be in the form of coupons.

Question

On January 1, a company issued $4,520,260 of 15-year notes with a coupon rate of 7%, payable semi-annually. The market rate of interest on the issuance date was 8%. What is the carrying value of the bonds at the end of the second year?

Definition Definition Calculates the present value of a bond's expected future periodic coupon payments. Bond valuation determines the theoretical fair value of a particular bond and helps investors estimate what rate of return they could expect. The bond's theoretical fair value is computed by discounting the future cash flows or coupon payments by an applicable discount rate.

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