[prasadskln]

This is one of the question from simulation
A Ltd Issues $100000 5 Year 10% bonds dated Jan 2 Year 1. Semi annual interest payment made on June 30 and Dec 31. Market rate of Interest is 8%

They have asked to calculate Compounding Period for Principal and Interest Rate. The answer is Compounding Period is 10 and Interest rate of Principal is 4%, my question is since the bond stated rate is 10% interest should be 5% isn’t it and for principal

[CPAHOPE]

The company is issuing the bond at a premium since the market interest rate is lower than the bond interest rate. You use bond interest rate when computing cash interest payment on bond. You use market interest rate when computing interest rate which includes premium that applies toward the principal.

Interest expense
Premium
Cash

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