Straight-line method and effective interest method

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Reference no: EM13749714

Lighthouse Enterprises decided to issue $1,400,000 of 10-year bonds. The interest rate on the bonds is stated at 10%, payable semiannually. At the time the bonds were sold, the market rate had increased to 12%.

1. Determine the maximum amount an investor should pay for these bonds. Use the PV table or the PV of an ordinary annuity table with this problem. Round your final answer to the nearest dollar

2. Assuming that the amount in (1) is paid, compute the amount at which the bonds would be reported by the investor after being held for one year. Use two recognized methods of handling amortization of the difference in cost and maturity value of the bonds. Round to the nearest whole dollar.

Straight-line method=

Effective interest method=

Reference no: EM13749714

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