$100,000 of five-year bonds are sold for $98,500 on the issue date.Interest of $4,000 is paid each year until the bonds are repaid.What is the total interest expense to the company for issuing these bonds?

Question

Quizplus · Accepted Answer

The total interest expense is the difference between the face value of the bonds and the issue price. In this case, the face value is $100,000 and the issue price is $98,500, so the total interest expense is $100,000 - $98,500 = $1,500. Since the bonds are five-year bonds, the total interest expense is $1,500 x 5 = $7,500.

$100,000 of Five-Year Bonds Are Sold for $98,500 on the Issue