Bonds issued at a premium and discount

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Reference no: EM131203556

Bonds Issued at a Premium

Assume that a company issues a bond at 113 having a face value of $2,000 and a coupon interest rate of 9%. The bond pays interest annually, has a five-year maturity time frame, and bonds of similar risk are currently paying interest rates of 6%. The bond's issue price would be $_____, it would make an annual interest payment on the bond in the amount of $______, and at the end of five years would pay back the principal of $______. The total premium on the bond is $______. Because bonds issued at a premium result in the company receiving more money up front, the bonds are actually costing the company less than just the periodic interest payments. For this reason, total interest expense equals the total interest paid over the life of the bond less the total premium on the bond. Total interest expense on this bond is $_______.

Bonds Issued at a Discount

Assume that a company issues a bond at 88 having a face value of $2,000 and a coupon interest rate of 6%. The bond pays interest annually and has a five-year-maturity time frame, and bonds of similar risk are currently paying interest rates of 9%. The bond's issue price would be $_____ , it would make an annual interest payment on the bond in the amount of $_____ , and at the end of five years, it would pay back the principal of $______ . The total discount on the bond is $_____ . Because discounted bonds result in the company receiving less money up front, the bonds are actually costing the company more than just the periodic interest payments. For this reason, total interest expense equals the sum of total interest paid over the life of the bond and total discount on the bond. Total interest expense on this bond is $_______ .

Reference no: EM131203556

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