On June 1, 2014, Mayberry Imports purchased bonds on the open market, paying $92,994. The bonds had

Question:

On June 1, 2014, Mayberry Imports purchased bonds on the open market, paying $92,994. The bonds had a face value of $100,000, a stated annual interest rate of 4 percent, and a remaining time to maturity of two years. Interest was paid semiannually on November 30 and May 31, and Mayberry intended to hold the bonds until the maturity date.

REQUIRED:

a. Compute the effective interest rate on the bonds.

b. Record the entries made by Mayberry when it received the interest payments on November 30, 2014, and May 31, 2015.

c. Compare the market value of the bond investment to its book (balance sheet) value on May 31, 2015, assuming that market interest rates as of that date were 6 percent.

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... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...