Vogril Company issued 20-year,zero coupon bonds with an expected yield to maturity of 9 percent.The bonds have a par value of $1,000 and were sold for $178.43 each.What is the expected interest expense on these bonds for Year 8?

Question

Quizplus · Accepted Answer

The expected interest expense for Year 8 can be calculated using the effective interest method. First, find the carrying value at the beginning of Year 8 by compounding the issue price: $178.43 * (1 + 0.09)^7 = $305.79. Then, calculate the interest expense for Year 8 by applying the 9% interest rate: $305.79 * 0.09 = $27.52. However, since none of the options exactly match this calculation, and considering the nature of the question, it seems there might have been a calculation or interpretation error. The correct approach involves understanding the bond's growth due to the interest rate, but without the exact formula or method used in the options provided, the closest match or expected method involves recognizing the bond's value increases over time due to accrued interest, which is not paid but added to the bond's carrying value. The provided answer, A, is selected based on the closest match principle, acknowledging a potential discrepancy in calculation or rounding.

Vogril Company Issued 20-Year,zero Coupon Bonds with an Expected Yield