Tracy's Wear Issued 10-Year Bonds with a Face Value of $60,000.The

question 85

Essay

Tracy's Wear issued 10-year bonds with a face value of $60,000.The bonds carry a 7% stated interest rate and pay interest once a year.They were issued when the market interest rate was 8%.
a.Calculate the present value of the bond issue.
b.Were these bonds issued at a premium or at a discount?
c.What is the amount of the premium or discount on the bond issue?
d.Calculate the amount of the amortization of the bond premium or discount for the first year,using the effective interest method.

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Definitions:

Marginal Costs

The amount spent to produce a further unit of a good or service.

Deadweight Loss

A loss of economic efficiency that can occur when equilibrium for a good or service is not achieved or is not achievable.

Coefficient Of Monopsony

A measure indicating the degree of market power held by a single buyer in a market.

Elasticity Of Supply

A measure of how much the quantity supplied of a good responds to a change in the price of that good, with higher elasticity indicating a greater response.