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073Q9 - Name_Zhi_Pei $-Digit_7988 Section_14518 Fun With...

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Name____ Zhi _ Pei _____________ $-Digit #__ 7988 ______ Section___ 14518 _______ Fun With Liabilities: [073Q9] The Trojan Company needs to borrow about $500,000 on December 31, Year 1. The firm is considering two options: issuing bonds and signing a long-term note payable. The firm will pursue only one of the options. Selected data are presented below related to each of the options under consideration. Bonds : The firm would issue 400 bonds [face value of $1,000 each] with a coupon rate of 10%. The market rate of interest for these bonds would be 6% and the bonds would be due on December 31, Year 8. The bonds would pay interest semi-annually on June 30 and December 31. Note Payable: The firm would sign a Note Payable on December 31, Year 1 when borrowing $500,000. The note would require equal semi-annual payments for eight years at which time the entire amount of the loan would be repaid [principal and interest]. The semi-annual payments would occur semi-annually on June 30 and December 31. The interest rate on the loan would be 6%. Required: 1. Determine the Interest Expense for Year 2 for each of the options under
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