A corporation issues for cash $9,000,000 of 8%, 30-year bonds, interest payable semiannually. The amount received for the bonds will be
A) present value of 60 semiannual interest payments of $360,000, plus present value of $9,000,000 to be repaid in 30 years
B) present value of 30 annual interest payments of $720,000
C) present value of 30 annual interest payments of $360,000, plus present value of $9,000,000 to be repaid in 30 years
D) present value of $9,000,000 to be repaid in 30 years, less present value of 60 semiannual interest payments of $360,000

Question

Quizplus · Accepted Answer

The correct answer is A because the bonds pay interest semiannually, which means there are 60 interest payments over the 30-year period. Each payment is 8% of $9,000,000, divided by 2 (for semiannual), which equals $360,000. The total amount received for the bonds is the present value of these 60 semiannual interest payments plus the present value of the $9,000,000 principal amount that will be repaid at the end of the 30 years.

A Corporation Issues for Cash $9,000,000 of 8%, 30-Year Bonds