# Krystian Inc. issued 10-year bonds with a face value of $100,000 and a stated rate of 4% when the market rate was 6%. Interest was paid semi-annually. Calculate and explain the timing of the cash flows the purchaser of the bonds (the investor) will receive throughout the bond term. Would an investor be willing to pay more or less than face value for this bond? FindFindarrow_forward ### Principles of Accounting Volume 1 19th Edition OpenStax Publisher: OpenStax College ISBN: 9781947172685 #### Solutions Chapter Section FindFindarrow_forward ### Principles of Accounting Volume 1 19th Edition OpenStax Publisher: OpenStax College ISBN: 9781947172685 Chapter 13, Problem 3EA Textbook Problem 1 views ## Krystian Inc. issued 10-year bonds with a face value of$100,000 and a stated rate of 4% when the market rate was 6%. Interest was paid semi-annually. Calculate and explain the timing of the cash flows the purchaser of the bonds (the investor) will receive throughout the bond term. Would an investor be willing to pay more or less than face value for this bond?

To determine

Introduction:

A bond is a debt instrument which carries a fixed interest rate on it. It is generally issued to raise the capital for firm.

To calculate:

The timing and amount of cash flows that investor will receive throughout the bond term.

### Explanation of Solution

Timing of cash flows:

As the interest payment is semi annually, the investor will get interest payments two times in a year for ten years. It will be in gap of six months. After ten years the investor will get return its principal amount.

Amount of cash flows:

Formula to calculate semi annually interest payment is:

Interest=(Principal×InterestRate×Time)

Substitute, $100,000 in principal, 4% in interest rate and 6/12 in time. Interest=($100,000×4

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