Computation of value of the bond

Zombie Industries issues $400,000 face value, 8.5% coupon, 15-year bonds on January 1, 2008. Interest is paid annually on December 31.

1. At what price (where par = 100%) would these bonds be issued, if the market rate of interest on January 1, 2008 is 10%?

2. Prepare the journal entry to record the sale of the bonds on January 1, 2008 if the market rate of interest on January 1, 2008 is 10%?

3. Prepare the journal entry to record interest expense and the interest payment on these bonds on December 31, 2008, using the effective interest rate method if the market rate of interest on January 1, 2008 is 10%?

4. What is the book value of these bonds on January 1, 2009 under the effective interest rate method if the market rate of interest on January 1, 2008 is 10%?

5. What is the market value of these bonds on January 1, 2009 if the market rate of interest on January 1, 2008 is 10% and the market rate of interest on January 1, 2009 has increased to 12%?

6. What is the total interest expense recorded on these bonds over the fifteen years if the market rate of interest on January 1, 2008 is 10%?

7. At what price (where par = 100%) would these bonds have been issued, if the market rate of interest on January 1, 2008 had been 7% rather than 10%?