What is the total interest cost over the life of the bonds?
A)$17,060
B)$20,000
C)$40,000
D)$57,060
Use the information below to answer questions 137-140.
Williamson Ltd issues $200,000 of 8%, 5-year bonds when the market interest rate is 6%. Interest is paid semi-annually.

Question

Quizplus · Accepted Answer

The total interest cost is calculated by finding the difference between the total interest payments and the premium received. The bonds are issued at a premium because the market rate is lower than the coupon rate. The total interest payments over 5 years (10 periods) at 8% on $200,000 is $80,000. The premium is the present value difference due to the lower market rate, which is $22,940. Therefore, the total interest cost is $80,000 - $22,940 = $57,060.

What Is the Total Interest Cost Over the Life of the Bonds