Issuance of a Bond at Face Value On January 1, 2010, Whitefeather Industries issued 300, $1,000 face

Question:

Issuance of a Bond at Face Value On January 1, 2010, Whitefeather Industries issued 300, $1,000 face value bonds. The bonds have a five-year life and pay interest at the rate of 10%. Interest is paid semiannually on July 1 and January 1. The market rate of interest on January 1 was 10%.

Required

1. Calculate the issue price of the bonds and identify and analyze the effect of the issuance of the bonds on January 1, 2010.

2. Explain how the issue price would have been affected if the market rate of interest had been higher than 10%.

3. Identify and analyze the effect of the payment of interest on July 1, 2010.

4. Calculate the amount of interest accrued on December 31, 2010.

Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...