Determine the effective interest rate on the bonds

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Reference no: EM1366622

Shaid company issued $2,000,000 of 6 percent, ten year convertible bonds on June 1st, 1993 at 98 plus accrued interest. The bonds were dated April 1st, 1993, with interest payable April 1st and October 1se. Bond discount is amortized semiannually on a straight line basis.

On April 1, 1994, $500,000 of these bonds were converted into 500 shares of $20 par value common stock. Accrued interest was paid in cash at the time of conversion.

What was the effective interest rate on the bonds when they were issued?
a) 6%
b) Above 6%
c) Below 6%
d) Cannot be determined from the information given.

Reference no: EM1366622

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