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Problem - On January 1, 2011, Tennessee Harvester Corporation issued debenture bonds that pay interest semiannually on June 30 and December 31. Portions of the bond amortization schedule appear below:

Payment

Cash
Payment

Effective
Interest

Increase in Balance

Outstanding
Balance




6,726,682   

1          

324,800     

336,334     

11,534      

6,738,216   

2          

324,800     

336,911     

12,111      

6,750,327   

3          

324,800     

337,516     

12,716      

6,763,043   

4          

324,800     

338,152     

13,352      

6,776,395   

5          

324,800     

338,820     

14,020      

6,790,415   

6          

324,800     

339,521     

14,721      

6,805,136   

~

~

~

~

~

~

~

~

~

~

~

~

~

~

~

38          

324,800     

394,944     

70,144      

7,969,016   

39          

324,800     

398,451     

73,651      

8,042,667   

40          

324,800     

402,133     

77,333      

8,120,000   

Required:

(1) What is the face amount of the bonds?

(2) What is the initial selling price of the bonds?

(3) What is the term to maturity in years?

(4) Interest is determined by what approach?

(5) What is the stated annual interest rate?

(6) What is the effective annual interest rate?

(7) What is the total cash interest paid over the term to maturity?

(8) What is the total effective interest expense recorded over the term to maturity?

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