Ellis issues 8.0%, five-year bonds dated January 1 2016 with a S430,000 par valu

Question

Ellis issues 8.0%, five-year bonds dated January 1 2016 with a S430,000 par value. The bonds ay interest on June 30 and December 31 and are ssued at a ce of 46 2. The annua market rate is 6% on the issue date. (TableB1, Table B.2, TableB3, and TableB.4) (Use appropriate factor(s) from the tables provided.) 1. Compute the total bond interest expense over the bonds life. Total bond interest expense over life of bonds Amount repaid: payments of Par value at maturity Total repaid Less amount borrowed Total bond interest expense

Explanation / Answer

Amount repaid:
10 payment of $17200 =       $1,72,000
Par value of maturity =            4,30,000
Total repaid =                             6,02,000
Less amount borrowed =           (466,682)
Total bond interest expense =   $1,35,318

Note:
Payment= 5 years × 2 per year= 10 semiannual payment
4,30,000×8%×6/12= 17200

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