Compute the effective interest rate on the bonds

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Reference no: EM131408066

On June 1, 2011, Mayberry Imports purchased bonds on the open market, paying $92,994. The bonds had a face value of $100,000, a stated annual interest rate of 4 percent, and a remaining time to maturity of two years. Interest was paid semiannually on November 30 and May 31, and Mayberry intended to hold the bonds until the maturity date.

REQUIRED:

a. Compute the effective interest rate on the bonds.

b. Record the entries made by Mayberry when it received the interest payments on November 30, 2011, and May 31, 2012.

c. Compare the market value of the bond investment to its book (balance sheet) value on May 31, 2012, assuming that market interest rates as of that date were 6 percent.

Reference no: EM131408066

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