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How to determine the issue price of the debenture

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Reference no: EM132545465

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 = 1-1/(1-k)n divided by k where, k is the discount rate expressed in decimal

Required:

Question (i) Determine the issue price of the debenture.

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

Reference no: EM132545465

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