Kalahari Limited
On January 2, 2019, this company issued 1,000,000, 10-year bonds for $1,150,000. The bonds pay interest on June 30 and December 31. The stated rate is 10% and the market rate is 8%. The company plans to use the effective interest method of amortizing bond discounts and premiums.
-Refer to Kalahari Limited. At the maturity date, besides an interest payment, the company would repay the bondholders

Question

Quizplus · Accepted Answer

At the maturity date, Kalahari Limited would repay the bondholders the face value (also known as the principal or par value) of the bonds. The face value is the amount that the company has agreed to pay back at the end of the bond term, regardless of the price at which the bonds were issued.
In this case, the company issued 1,000,000 bonds. The face value of each bond is not explicitly stated, but since bonds are typically issued with a face value of $1 per bond unless otherwise specified, we can assume that the face value of the bonds is $1,000,000 in total (1,000,000 bonds x $1 each).
The fact that the bonds were issued for $1,150,000 (which is more than the face value) indicates that they were sold at a premium because the stated interest rate of 10% was higher than the market interest rate of 8% at the time of issuance. This premium will be amortized over the life of the bonds using the effective interest method.
Therefore, at the maturity date, besides making the last interest payment, Kalahari Limited would repay the bondholders the face value of the bonds, which is:
c. $1,000,000.

Kalahari Limited On January 2, 2019, This Company Issued 1,000,000, 10-Year Bonds