Use the present value and future value tables included in Appendix 8 and on the textbook companion website.
-Assuming the straight-line method of amortization is used, the average yearly interest expense on a $450,000, 11 percent, 20-year bond issued at 106 would be

Question

Use the present value and future value tables included in Appendix 8 and on the textbook companion website. 
-Assuming the straight-line method of amortization is used, the average yearly interest expense on a $450,000, 11 percent, 20-year bond issued at 106 would be

Quizplus · Accepted Answer

The bond is issued at 106, which means it is issued at a premium. The premium is $450,000 * 6% = $27,000. The total interest paid over 20 years is $450,000 * 11% * 20 = $990,000. The premium amortized over 20 years is $27,000 / 20 = $1,350 per year. The average yearly interest expense is $49,500 - $1,350 = $48,150.

Use the Present Value and Future Value Tables Included in Appendix