The cost of the bond at costing is $984.50.
What is a bond?
- A bond is a type of financial security in which the issuer (the debtor) owes the holder (the creditor) a debt and is obligated to repay the principal (i.e. amount borrowed) of the bond at the maturity date as well as interest (called the coupon) over a specified period of time, depending on the terms.
- Interest is usually paid at regular intervals (semiannual, annual, and less often at other periods).
- As a result, a bond is a type of loan or IOU.
- Bonds provide the borrower with external funds to finance long-term investments or, in the case of government bonds, current expenditures.
To determine the cost of the bond at costing:
- $1,000 is the face value.
- Multiply this by the closing rate to find the cost of the bond at closing.
- $1,000 × .9845 = $984.50
Therefore, the cost of the bond at costing is $984.50.
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