On January 1 of Year 1, Congo Express Airways issued $3,500,000 of 7%, bonds that pay interest semiannually on January 1 and July 1. The bond issue price is $3,197,389 and the market rate of interest for similar bonds is 8%. The bond premium or discount is being amortized using the straight-line method at a rate of $10,087 every six months. The life of these bonds is:
A) 30 years.
B) 26.5 years.
C) 35 years.
D) 32 years
E) 15 years.

Question

Quizplus · Accepted Answer

The total discount on the bonds is $3,500,000 - $3,197,389 = $302,611. Using the straight-line method, the discount is amortized at $10,087 every six months. Therefore, the number of periods is $302,611 / $10,087 = 30 periods. Since interest is paid semiannually, the bond's life is 30 periods / 2 = 15 years.

On January 1 of Year 1, Congo Express Airways Issued