Ramsey corp issued a 2000000 of 4 bond to yield 6 market

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Reference no: EM13608962

Ramsey Corp. issued a $2,000,000 of 4% bond to yield 6% (market rate). The bond was issued on 1/1/2000 to provide semi-annual payments and expected to mature in 10 years. The semi-annual payments are to be made every June 30 and December 31. Costs of issuing the bonds amounted to $20,000.

a) Calculate the cash proceeds (price) of this bond on 1/1/2000.

b) Determine the interest expense recognized by Ramsey on 6/30/2000 and 12/31/2000.

c) Determine the book value (or carrying value) of the bond on 1/1/2004, i.e. after 8 semi-annual payments.

d) Calculate the total interest expense recorded by Ramsey if it held the bond to maturity.

e) Assume that the bonds are retired after 4 years ( i.e., on 1/1/2004) for 98 of the par value. Unamortized Bond Issuance Costs remaining in the balance sheet at the date of retirement Calculate the gain or loss associated with this debt retirement.

f) A second $100,000 semi-annual bond was issued by Ramsey Corp on 7/1/2000 for a cash proceeds of $92,976. The journal entry provided by Ramsey on 12/31/2000 is given as follows:

Interest expense $6,508
Discount or B/P 508
Cash 6,000

i) Determine the annualized coupon rate of the bond.
ii) Determine the annualized yield rate of the bond.

Reference no: EM13608962

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