Reference no: EM131768679

Question - Stafford sold its 8% bonds with a maturity value of $1,000,000 on August 1, 1999 for $982,000. At the time of the sale the bonds had 5 years until they reached maturity. Interest on the bonds is payable semiannually on Aug 1 and Feb. 1. The bonds are callable at 104 at any time after Aug 1, 2001. By October 1, 2001 the market rate of interest has declined and the market price of Stafford's bonds has risen to price of 102. The firm decides to refund the bonds selling a new 6% bond issue to mature in five years. Stafford begin to require its 8% bonds in the market and is able to purchase $150,000 worth at 102. The remainder of the outstanding bonds is required by exercising the bond's call feature. In the final analysis, how much was the gain or loss experienced by Stafford in requiring its 8% bonds? (Assume the firm used straight line amortization) Show all calculations.