Compute the effective interest rate

Reference no: EM131410504

The bonds have a stated interest rate of 5 percent and will mature on December 31, 2014.
The market value of the bonds as of December 31, 2012, is $186,479.

a. Compute the effective interest rate when the bonds were issued.

b. What effective rate would an investor be earning by purchasing the bonds on December 31, 2012, at the market price and holding the bonds until maturity?

c. Assume that Cohort reported net income of $38,500 for the period ending December 31, 2012. Adjust net income for the gain or loss experienced by the company on these outstanding bonds due to the change in market interest rates. Ignore income taxes. Do you believe that the gain or loss represents an\ increase or a decrease in the wealth of the company? Why?

d. Assume that Cohort retired the bonds by purchasing them on the open market. Record the journal entry, and compare the gain or loss recognized on the retirement with the gain or loss computed in (c) above. Discuss.

Reference no: EM131410504

Questions Cloud

Motivated the firm to pursue that position : Pick a firm with which you are familiar (you need not have worked there) - Does the firm attempt to seek a competitive advantage through a benefits position, through a cost position, or both

What is culture diversity : What is culture diversity? How are cultural differences perceived in today's world? How does social interaction play in such circumstances? What is social interaction

How would you use demographic data to characterize : How would you use demographic data to characterize this disease?How would you incorporate further research to address this disease?How would you use morbidity and mortality in developing prevention strategies aimed at increasing attention to diseas..

Question reagrding the natural hazards : Access the "USGS Hazards" website under the Natural Hazards terms section of the Science Corner. You can also access the website at http://www.usgs.gov/natural_hazards/. Choose one (1) of the following geologic hazards: earthquake, landslide, or f..

Compute the effective interest rate : Assume that Cohort retired the bonds by purchasing them on the open market. Record the journal entry, and compare the gain or loss recognized on the retirement with the gain or loss computed in (c) above. Discuss.

Loss of energy to friction : An electron with electric charge of 1.6 x 10-19 C falls through a potential difference of 41 kV in the vacuum of an X-ray tube. What is the kinetic energy of the electron, assuming it started from rest and that there is no loss of energy to fricti..

Intersection as the rocket speeds through : What is the length of the rocket to an observer standing at the intersection as the rocket speeds through?

What the mass media did to the hero : Write one sentence describing what the mass media did to the hero. Include a citation - write one sentence describing what else helped to kill off heroes?Include a citation.

Volume should be withdrawn : A vial containing 99mTc is labeled "75 kBq/ml at 12 am. What volume should be withdrawn at 8 pm on the same day to prepare an injection of 50 kBq for a patient?

User Account

All Pages