What is the total cost to be debited to the investment account?
on June 1, $ 500,000 of bonds were purchased as a long-term investment at 101 and $ 600 was paid as the brokerage commission. If the bonds bear interest a 11%, which is paid semiannually on January 1 and July 1. what is the total cost to be debited to the investment account?
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Answer by buy1lowsell2high
Uhhhm, you're probably dealing with bonds on the secondary market and had to pay a substantial amount in accrued interest which is rightfully due to the person (previous owner) that sold the bond to you. Basically, you are paying the previous owner the interest due to them for the period that they held the bond. On July 1st, you will receive 6 months of interest for the bond.
No offense but, those sound like some risky bonds (11%) when treasuries are paying 4.5%.
Investopedia Says:
Accrued interest is added to the contract price of a bond transaction. Essentially, accrued interest has been earned since the last coupon payment - but since the bond hasn't expired or the next payment is not yet due, the owner of the bond hasn't officially received the money. If he or she sells the bond, accrued interest is added to the sale price.
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