# Finding bond interest expense

Lesp Industries issues five-year bonds dated 1 January 2015 with a face value of \$2,000, 000 and 3% coupon rate paid annually on 31 December. The market interest rate on bonds of comparable risk and term is 4%. The sales proceeds of the bonds are \$1,910,964. Under the effective interest rate method, the interest expense in 2017 is closest to:

1. \$77,096.
2. \$77,780.
3. \$77,807.

How do you solve this question using the TVM functions?

Using the BAII:

P/Y = C/Y = 1
2nd CLR TVM
5 N 4 I PMT 60,000 FV 2,000,000 CPT PV \$1,910,963.55 (just to verify given info)

2ND AMORT
3 P1 3 P2 arrow down to INT 77,779.92

It might be faster just to roll the initial PV with 4% interest and deduct the coupon for a couple of years to get the remaining balance and multiply by 4%.

ETA:

1,910,963.55 * 1.04 - 60,000 = 1,927,402.09 (balance, end of year 1)
1,927,402.-09 * 1.04 - 60,000 = 1,944,498.18 (balance, end of year 2)
1,944,498.18 * 0.04 = 77,779.93 (interest, year 3)

Youâ€™re right, the second method is surely easier. Thanks