Briefly discuss conceptual merits of using market rate

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Reference no: EM131015997

On January 1, 2015, RA Company issued for $537,616 its 20-year, 13% bonds that have a maturity value of $500,000 and pay interest semiannually on January 1 and July 1.

Required

a. Explain why investors would pay $537,616 for bonds with a maturity value of only $500,000.

b. Briefly discuss the conceptual merits of using the market rate as opposed to the coupon rate to calculate the carrying value of the bonds.

Reference no: EM131015997

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