Cook County Bond Transaction

Cook Co. issues $200,000 face value of bonds on 01/01/2010 at a time when the market rate of interest for bonds of this risk and features was 6%. The bonds have a 20-year life and pay semi-annual (twice a year) interest at a coupon annual rate of 4%.

1)What amount did Cook receive for the bonds at the time of issuance? Assume there are no fees associated with the issuance.

2)How much interest will be paid out (cash) by Cook in the first year for these bonds?

3)How much interest expense will Cook record in the first year for these bonds?

4)If the market rate of interest falls to 5% at the end of 2010, what will be the book value of the bonds at the end of 2010?

5)If the market rate of interest falls to 5% at the end of 2010, how much will the bonds be worth?

6)If Cook Corp were to retire the bonds on 12/31/10, how will Cooks pre-tax income be affected?