Prescott Corporation issued ten thousand $1,000 bonds on January 1, 2011. They h
ID: 2466489 • Letter: P
Question
Prescott Corporation issued ten thousand $1,000 bonds on January 1, 2011. They have a ten-year term and pay interest semiannually. This is the partial bond amortization schedule for the bonds.
Payment Cash Effective Interest Decrease in Balance Outstanding Balance
1 400,000 344,632 55,368 11,487,747
2 400,000 342,971 57,029 11,432,379
3 400,000 341,261 58,739 11,375,350
4 400,000
What is the stated annual rate of interest on the bonds?
A. 6%
B. 4%
C. 3%
D. 8%
Explanation / Answer
Face value = 10000 *1000 =$ 10,000,000
Stated rate = 400,000 / 10,000,000 = .04 or4%
correct option is "B"