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What would the net book value of the bond be on december

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On December 31, year 0, your company issued a zero-coupon bond with a face value of $1,000. The bond matures after 8 years, on December 31, year 8. At issuance, investors discounted the bond's promised cash flows at an annual rate of 8.5%.

Problem 1: Based on this information, what would the net book value of the bond be on December 31, year 1?

Problem 2: Assume that the bond from the previous question was repurchased on January 1, year 2. The repurchase resulted in a gain of $81.38. How much did the firm pay to repurchase the bond?

  • Assume that the net book value on December 31, year 1 is the same as the net book value on January 1, year 2.
  • The discount rate used to price the bond was 8.5%.

Reference no: EM132838148

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