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On January 1 of Year 1, Lily Company issued bonds with a coupon rate of 7%...

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Accounting

On January 1 of Year 1, Lily Company issued bonds with a couponrate of 7% and a face amount of $3,000. The bond interest paymentsare made twice each year on June 30 and on December 31. The bondsmature in 12 years. The market interest rate for bonds with thesame degree of riskiness is 10% compounded semi-annually. OnJanuary 1 of Year 1,Investor Company purchased all of the LilyCompany bonds when they were issued. Investor Company hasclassified this investment in bonds as a held-to-maturityinvestment. What is the total amount of interest revenue thatInvestor Company will report in Year 1 in connection with this bondinvestment? Of course, Investor Company uses the effective interestamortization method. Note: Round all of your calculations to thenearest penny.

$237.90

$28.60

$620.94

$62.09

$210.00

$238.60

Answer & Explanation Solved by verified expert
4.4 Ratings (925 Votes)
CALCULATION OF PRESENT VALUE OF THE BOND IF THE INTEREST PAID SEMI ANNUALLY Step 1 Calculation of Annual Coupon Payments Par value of the bond issued is 3000 Million Annual Coupon 700 Annual Coupon Amount 21000 Million Semi Annual Coupon Amount 10500 Million Step 2 Calculate number of years to Maturity Number of years to maturity 12 years Interest is paid semi annyally so total period 12 Years 2 24 Periods Step 3 Caclulation of Current    See Answer
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