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Calculate the cash interest the investor

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Reference no: EM132419189

Problem: White Oaks Corporation issues $5,00,000 face value, 10% stated rate, 10-year bonds for proceeds of $565778. Cash interest is paid semiannually at the rate of 5% semiannual interest. The semi-annual yield (effective rate) on the bond is 4%. Answer the following questions and show all calculations.

Required:

Question 1: Calculate the interest expense that would be recorded by White Oaks on the first interest payment date.

Question 2: Calculate the cash interest the investor will always receive on a semiannual basis payment.

Question 3: Calculate the change in carrying value of the debt due to the first interest payment. Be sure to indicate if the carrying value increased or decreased.

Question 4: Did this bond sell for a premium or discount? Describe why an investor would have paid a premium ( or discount) for the bond. Be sure to include in your description the impact of the comparative size of the stated and effective rates of interest

Reference no: EM132419189

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