On January 1, 1998, Megafloat Corporation sold 100,000 bonds with the following characteristics:

1. Face value, $1,000 each
2. Coupon rate of 13%
3. payment schedule -- January 1 and July 1
4. maturity date -- January 1, 2006

The bonds sold to yield an effective interest rate of 12%.

Assignment

1. What was the total amount received for the bonds?
2. Was the total interest expense related to this bond on Megafloat's 1998 income statement?
3. Disregard your answers to Questions 1 and 2. Assume that the market rate was not 12% and the issue sold at a discount. CBS television financial commentator Flint Buckmeister interpreted the result as follows:

   “It is evident that the Street doesn't have much confidence in Megafloat. Their bonds wouldn't sell without a discount.”

4. Is Flint right? If so, explain what he is talking about. If not, give the correct explanation.