Toronto Inc. is short on cash and wishes to offer a 20 year $5,000,000,000 bond with a 6% contract rate of interest. Unfortunately for Toronto Inc., the current market rate for bonds of this magnitude is around an average of 10%. Interest of course is paid semi-annually. Please the following questions regarding Torontos bond offering.

1. Calculate the cash proceeds of Torontos bond offering?

2. What is the total amount of interest paid in cash each year?

3. What is the total amount of interest paid over the life of the bonds?

4. What is the amount of interest charged during the first full year that the bonds were outstanding?

5. If Toronto wanted to pay off the bonds at the end of the first year, it is estimated the company would have to write a check for $5,500,000,000. Provide the complete Journal Entry for such a transaction.

6. Economists have forecasted the market rate of interest to decrease in a short period of time. In fact, as low as 4%, and Toronto wishes for you calculate the cash proceeds of the bond offering if the market rate of interest is 4%.

7. What is the initial journal entry to record this second bond fact pattern?

8. What is the total interest paid for each year on this second bond fact pattern?

9. What is the total interest listed as an expense on Torontos income statement?

10. Explain the following concept: As rate of interest rises bond prices fall and when rates of interest decrease bond prices rise?

We shall ignore risk factors in the question.