Could someone please assist in this matter. I'm trying to ascertain the straight-line discount amortization of a problem which is as follows. A company issues $4,000,000 of 6%, 15 year bonds dated January 1, 2007 that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of $3,456,448. I'd need the straight-line discount amortization to this problem. Could you assist in this matter? Also, please let me know if you need any additional information.
Certainly! To calculate the straight-line discount amortization for this bond, we need the following information:
1. Face value of the bond: $4,000,000
2. Issue price of the bond: $3,456,448
3. Duration of the bond: 15 years
4. Interest rate on the bond: 6%
5. Interest payment frequency: Semiannually
To calculate the straight-line discount amortization, follow these steps:
Step 1: Calculate the discount on the bond:
Discount = Face Value - Issue Price
Discount = $4,000,000 - $3,456,448
Discount = $543,552
Step 2: Calculate the annual discount amortization:
Annual Discount Amortization = Discount / Duration
Annual Discount Amortization = $543,552 / 15
Annual Discount Amortization = $36,237.60
Step 3: Since the interest payment frequency is semiannually, divide the annual discount amortization by 2:
Semiannual Discount Amortization = Annual Discount Amortization / 2
Semiannual Discount Amortization = $36,237.60 / 2
Semiannual Discount Amortization = $18,118.80
So, the straight-line discount amortization for this bond is $18,118.80 per semi-annual interest payment.
Feel free to ask if you have any further questions or need additional clarification!