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Determine the issue price of the debenture

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Question - On 1 July 2018 BMW Ltd issues $2 million in 10-year debentures that pay interest each six months at a coupon rate of 10 per cent. At the time of issuing the securities, the market requires a rate of return of 12 per cent. Interest expense is determined using the effective-interest method.

Formula for PV of $1 in n periods =1/(1+k)n

Formula for present value of annuity of $1 per period for n periods = k k n 1-1/(1+) where, k is the discount rate expressed in decimal

Required -

(i) Determine the issue price of the debenture.

(ii) Provide the journal entries at 1 July 2018 and 30 June 2019.

Reference no: EM132569894

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