Determine the total discount or premium for each issue

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The initial proceeds per bond, the size of the issue, the initial maturity of the bond, and the years remaining to maturity are shown in the following table for a number of bonds. In each case, the firm is in the 35 percent tax bracket, and the bond has a $1,000 par value.

Bond

Proceeds per Bond

Size of Issue

Initial Maturity of Bond

Years Remaining to Maturity

A

$ 975

50,000 bonds

10 years

5 years

B

1,020

25,000

20

15

1,000

100,000

25

12


a. Indicate whether each bond was sold at a discount, at a premium, or at its par value.

b. Determine the total discount or premium for each issue.

c. Determine the annual amount of discount or premium amortized for each bond.

d. Calculate the unamortized discount or premium for each bond.

e. Determine the after-tax cash flow from the unamortized discount associated with the retirement now of each of these bonds, using the values developed in part (d).

Reference no: EM131317668

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