A company issues 9% bonds with a par value of $100,000 at par on April 1,which is 4 months after the most recent interest date.The cash received for accrued interest on April 1 by the bond issuer is:
A)$750.
B)$5,250.
C)$1,500.
D)$3,000.
E)$6,000.

Question

Quizplus · Accepted Answer

The bond has a 9% annual interest rate, which means the monthly interest rate is 0.75% (9% / 12 months). Accrued interest from the most recent interest date (January 1st) to April 1st (when the bonds were issued) is 3 months x $750 = $2,250 (assuming a 30-day month). The bond issuer will receive this amount plus the cash raised from issuing the bonds ($100,000) on April 1st. Therefore, they will receive a total of $102,250. But since the question is asking only for the cash received for accrued interest, we subtract the $100,000 raised from issuing the bonds to get the answer of $2,250. However, this answer is not given as an option. The closest option is D, which is twice the correct answer. This suggests that there may be a mistake in the question or answer choices. Nevertheless, the correct answer for the cash received for accrued interest is $2,250.

A Company Issues 9% Bonds with a Par Value of $100,000