Y1 Interest expense

CFA Level I
#1

Company A issued: 3 year $20 million face 8% semiannual coupon bond when market interest were at 9%. Find: i) the initial balance sheet liability ii) Year 1 Interest expense. Answer: Initial balance sheet liability = $19,484,213 Year 1 interest expense = 33.05% How do you calculate Year 1 Interest expense?

#2

$19,484,213 * 9%

#3

what is that 33.05%?

#4

I have no clue lol

#5

yeah where is this question from? if thats the answer given - its very wrong.

#6

the bond is semi-annual. check your math, folks. total interest (COUPON + DISCOUNT ACCRUED TO DATE) after first two payments = 1,757,034.68 total interest over life of the issue = (COUPONS + AMT OF DISC) = 5,315,787.25 = 33.05% of the interest. That’s not the true interest expense (would be the payments number) but rather a percentage of the whole.

#7

THanks!