Canglon, Inc., issues 10%, 5-year bonds with a face value of $150,000 when the effective rate is 12%. Interest is to be paid semiannually on June 30 and December 31. Assume Canglon uses the effective interest method to amortize the discount. Prepare calculations to prove that the selling price of the bonds is $138,959.90.

Question

Business

Ryland Berry

4 December, 12:09

Canglon, Inc., issues 10%, 5-year bonds with a face value of $150,000 when the effective rate is 12%. Interest is to be paid semiannually on June 30 and December 31. Assume Canglon uses the effective interest method to amortize the discount. Prepare calculations to prove that the selling price of the bonds is $138,959.90.

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Milo Bush · Answer 1

Base on the scenario been described in the question, the calculation is done using this method

Particulars

Present value of principal

Add: present value of interest

Selling prices of bonds

Amount (A)

$150,000

$7,500

Present value factor (B)

O. 558395

7.360087

Value of the bonds (A * B)

$83,759.25

$55,200.65

$138,959.90

Bond is said to be the long term promissory notes issued by company as the the lend money from investors to raise money that will be use in financing their operations.