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Lopez Plastics Co. (LPC) issued callable bonds on January 1, 2018. LPC's accountant has projected the following amortization schedule from issuance until maturity: Date Cash Interest Effective Interest Decrease in balance Outstanding balance 1/1/2018 $207,020 6/30/2018 $7,000 $6,211 $789 206,230 12/31/2018 $7,000 6,187 813 205,417 6/30/2019 $7,000 6,163 837 204,580 12/31/2019 $7,000 6,137 863 203,717 6/30/2020 $7,000 6,112 888 202,829 12/31/2020 $7,000 6,085 915 201,913 6/30/2021 $7,000 6,057 943 200,971 12/31/2021 $7,000 6,027 971 200,000 What is the annual stated interest rate on the bonds

Sagot :

anthougo

The Lopez Plastics Co. issued the callable bonds at the annual stated interest rate of 7%.

Data and Calculations:

Date             Cash Interest   Effective Interest   Decrease    Outstanding

                                                                            in balance       balance

1/1/2018                                                                                        $207,020

6/30/2018       $7,000                $6,211                 $789              206,230

12/31/2018       $7,000                 6,187                    813                205,417

6/30/2019       $7,000                 6,163                   837              204,580

12/31/2019      $7,000                  6,137                   863               203,717

6/30/2020     $7,000                   6,112                  888              202,829

12/31/2020    $7,000                 6,085                    915               201,913

6/30/2021     $7,000                 6,057                   943               200,971

12/31/2021     $7,000                6,027                    971              200,000

Total cash interest per year = $14,000 ($7,000 + $7,000)

Annual stated interest rate = 7% ($14,000/$200,000 x 100)

This annual interest rate can also be worked out as 7% ($7,000/$200,000 x 100 x 2), while the effective interest rate is 6% ($6,027/$200,000 x 100).

Thus, Lopez Plastics Co. issued the callable bonds at the annual stated interest rate of 7%.

Learn more: ehttps://brainly.com/question/25654055

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