Question:
Zero coupon bonds pay no interest—the only cash investors receive is the lump-sum principal payment at maturity. On January 1, 2014, The Ledge Inc. issued $250 million of zero coupon bonds at a market yield rate of 12%. The bonds mature in 20 years.
Required:
1. What was the January 1, 2014, issue price of these zero coupon bonds?
2. How much interest expense will The Ledge record on the bonds in 2014?
3. How much interest expense will The Ledge record on the bonds in 2015?