Question 7(5 points)

Michael will need $20,000 in the future to buy a boat (the price of the boat will not change over time). He currently has $17,252.20. If the prevailing interest rate is 3% compounded annually, how many years must Michael wait to buy his boat?

Question 7 options:

10 years

8 years

6 years

5 years

Question 8(5 points)

Mary just won the lottery! She won $1,000,000! She plans to put the money in the bank today, and will withdraw an equal amount for the next 10 years at the end of each year. If the prevailing interest rate is 8% compounded annually, how much money can Mary withdraw each year? Round your answer to the nearest penny.

Question 8 options:

$109,029.52

$119,029.52

$100,000.00

$149,029.52

Question 9(5 points)

ABC Corp. is in need of cash. It issues bonds with a $3 million face value. The bonds have an 8% coupon rate. The market rate is also 8%. The bonds have a life of 7 years, and are compounded semiannually. What is the price of these bonds upon issuance?

Question 9 options:

$3,240,000

$3,499,990

$3,000,000

$2,760,000

Question 10(5 points)

XYZ Corp. is in need of cash. XYZ issues bonds with a $1 million face value. The bonds have an 5% coupon rate. The market rate is 4%. The bonds have a life of 10 years, and are compounded semiannually. What is the price of these bonds upon issuance? Round your answer to the nearest penny.

Question 10 options:

$1,181,755.75

$1,081,755.75

$1,581,755.75

$1,000,000.00

Part 3: Accounting for Bonds

Question 11(5 points)

Exam Corp. is in need of cash. On 1/1/2023 Exam Corp. issues bonds with a $350,000 face value. The bonds have an 7.50% coupon rate. The market rate is 18%. The bonds have a life of 6 years, and are compounded semiannually. At the time of issuance, the price of the bonds is correctly calculated to be $218,420. All answers below can be rounded to the nearest dollar.

___________________

What is the journal entry at Exam Corp. will record upon issuance of these bonds?

Question 11 options:

Dr. Cash $218,420

Dr. Discount $131,580

Cr. Bonds Payable $86,840

Dr. Cash $218,420

Dr. Interest Expense $131,580

Cr. Bonds Payable $350,000

Dr. Cash $218,420

Dr. Premium $131,580

Cr. Bonds Payable $350,000

Dr. Cash $218,420

Dr. Discount $131,580

Cr. Bonds Payable $350,000

Question 12(5 points)

Exam Corp. is in need of cash. On 1/1/2023 Exam Corp. issues bonds with a $350,000 face value. The bonds have an 7.50% coupon rate. The market rate is 18%. The bonds have a life of 6 years, and are compounded semiannually. At the time of issuance, the price of the bonds is correctly calculated to be $218,420. All answers below can be rounded to the nearest dollar.

___________________

What is the journal entry Exam Corp. will record on 6/30/23?

Question 12 options:

Dr. Interest Expense $19,658

Cr. Discount $6,592

Cr. Cash$26,250

Dr. Interest Expense $19,658

Cr. Cash $13,125

Cr. Premium $6,533

Dr. Interest Revenue $19,658

Cr. Cash $13,125

Cr. Discount $6,533

Dr. Interest Payable $19,658

Cr. Premium $6,592

Cr. Cash$26,250

Dr. Interest Expense $19,658

Cr. Cash $13,125

Cr. Discount $6,533

Question 13(5 points)

Exam Corp. is in need of cash. On 1/1/2023 Exam Corp. issues bonds with a $350,000 face value. The bonds have an 7.50% coupon rate. The market rate is 18%. The bonds have a life of 6 years, and are compounded semiannually. At the time of issuance, the price of the bonds is correctly calculated to be $218,420. All answers below can be rounded to the nearest dollar.

___________________

What is the journal entry Exam Corp. will record on 12/31/23?

Question 13 options:

Dr. Interest Expense $20,246

Cr. Discount $6,004

Cr. Cash$26,250

Dr. Interest Expense $20,246

Cr. Cash $13,125

Cr. Premium $7,121

Dr. Interest Payable $20,246

Cr. Premium $6004

Cr. Cash$26,250

Dr. Interest Expense $20,246

Cr. Cash $13,125

Cr. Discount $7,121

Dr. Interest Revenue $20,246

Cr. Cash $13,125

Cr. Discount $7,121

Question 14(5 points)

Exam Corp. is in need of cash. On 1/1/2023 Exam Corp. issues bonds with a $350,000 face value. The bonds have an 7.50% coupon rate. The market rate is 18%. The bonds have a life of 6 years, and are compounded semiannually. At the time of issuance, the price of the bonds is correctly calculated to be $218,420. All answers below can be rounded to the nearest dollar.

___________________

What is the book value of Exam Corp.'s bonds at the end of 2023?

Question 14 options:

$350,000

$232,074

$218,420

$224,953