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On 1 July 2018 Power Ltd

Accounting

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On 1 July 2018 Power Ltd. issues $10 million in five-year debentures that pay interest each six months at a coupon rate of 5 per cent. At the time of issuing the securities, the market requires a rate of return of 8 per cent. Interest expense is determined using the effective-interest method.

Required:

1. Determine if the debenture is issued premium or discount? (2 marks)
2. Determine the Fair Value of the Debentures? (3 marks)