QUESTION 4

Question #4 (15 marks) Insouciance, Inc. (President, John Carefree) issued $100,000, 8% coupon bonds on January 1, 2010, due on December 31, 2014. The prevailing market interest rate on January 1, 2010 was 10%, and the bonds pay interest on December 31 of each. Consider the following (incomplete) table for the bond's carrying value (CV) Dec 31, 2012 Dec 31, 2013 CV $96,529 ? Required: a. Verify the given CV of $96,529 (2 marks) b. Calculate the missing CV (3 marks) C. How much interest expense did Insouciance record in 2013? (4 marks) d. Now assume semi-annual compounding so that the bonds pay interest on June 30 and December 31 of each year. Repeat (b) and (c). (6 marks)