Can someone help me with this bond question? and PJ Bond @ Fest 11 10.27.12-11

Can someone help me with this bond question?

X Company issues a $ 1,000 dollar bond with a stated annual interest rate of 9%. The bond matures in 10 years and the effective interest rate is 9%. What are the cash proceeds to X Company from the issuance of the bond?

I really need some help here. I have a homework problem like this (with different numbers), and I need to know how to calculate the answer. Thanks.


Bond best answer:

Answer by ed
When one buys the bond, in affect, one is loaning money to the company.
The interest rate, 9%, is simple and fixed for the term.
The buyer receives 9 % of $ 1,000.00 per annum.
This may be paid quarterly, semi-annualy, or annualy.

The annual interest, $ 1000 X 0.09, would be divided if paid as above, or paid in a lump sum annually.

The interest paid by the company is accounted for as "Interest Expense".

There are no real cash proceeds, as income, to the company. They do receive the value of the bond/s in cash, as a loan, which is usually used for working capital.
At the end of the term, the bonds are redeemed, called in, and the face value is repaid to the buyer of the bond/s.

Bond

PJ Bond @ Fest 11 10.27.12-11


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