[LucyP]

"Sears issues bonds with a par value of $175,000 on January 1, 2009. The bonds' annual contract rate is 4%, and interest is paid semiannually on June 30 and December 31. The bonds mature in three years. The annual market rate at the date of issuance is 6%, and the bonds are sold for $165,523.
1) What is the amount of the discount on these bonds at issuance?
2) How much total bond interest expense will be recognized over the life of these bonds?

My work:
1)
Par Value - Discount Price = Discount
175,000 - 165, 523 = 9,477 (Discount)

2)
Par Value x Interest x 1 (annually) = Interest Expense per year
175,000 x .04 x 1 = 7,000 Interest Expense per year

7,000 (Yearly Interest Expense) x 3 years (the life of the bond) = 21,000