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Question - James is planning to issue $620,000 of 5%, five year bonds payable to borrow for a major expansion. The owner, James, asks your advice on the following:

1. At what type of bond price will James have total interest expense equal to the cash interest payments?

2. Under which type of bond price will James' total interest expense be greater than the cash interest payments?

3. If the market interest rate is 6%, what type of bond price can James expect for the bonds?

4. Compute the price of the bonds if the bonds are issued at 95.

5. How much will James pay in interest each year? How much will James' interest expense be for the 1st year?

Accounting Basics, Accounting

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