Duffy Inc. issues $300,000 worth of 7.5% bonds on January 1, 20x2, which will mature on December 31, 20x3. The market rate on the date of issuance is 6%. Interest will be paid semiannually on June 30 and December 31.

A. Will this bond sell at a premium or a discount? How do you know BEFORE calculating the price?

B. Will the carrying value increase or decrease over the life of the bond? How do you know BEFORE calculating the price?

C. Will the interest expense increase or decrease over the life of the bond? How do you know BEFORE calculating the price?

D. Calculate the purchase price of the bond.

Face value				n =
Stated Rate				i =
# of Years
Effective interest rate				Factors:
Interest payments				PV of $1
				PV of OA

E. What will be the total interest expense over the life of the bonds?

F.

Record all journal entries necessary from the date of issue until the maturity date.
			1/1/x2
			6/30/x2		12/30/x2
			12/31/x3