- CFA Exams
- CFA Level I Exam
- Study Session 8. Financial Reporting and Analysis (3)
- Reading 28. Non-current (Long-term) Liabilities
- Subject 1. Accounting for Bond Issuance, Bond Amortization, Interest Expense, and Interest Payments

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**CFA Practice Question**

The Mod Company issued a zero-coupon bond on January 1, 20x0, due December 31, 20x4. The face value of the bond was $100,000. The bond was issued at an effective rate of 14% (compounded annually). The CFO before interest and tax in each year is $60,000. EBIT in each year is $70,000.

The cash proceeds of the bond issue are ______.

A. $51,937

B. $100,000

C. $60,000

**Explanation:**Cash proceeds on a bond: 100,000/(1.14)

^{5}= $51,937

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**User Contributed Comments**
6

User |
Comment |
---|---|

danlan |
Cash proceeds means the purchase price. |

andy4cfa |
CFO and EBIT are not relevant for the calculation of bond price here? |

Bibhu |
CFO and EBIT not relevant in this question. Cash proceeds means purchase price or PV of the bond. N = 5, I/Y =14, FV= 100,000, PMT= 0, CPT - PV. |

mbowa |
noted about the cash proceeds |

GBolt93 |
wasted so much time trying to figure out the coupon before I reread and realized it was a zero coupon bond... |

MapherRdz |
Why is N=5? I dont get it |