A 5 percent debenture (face value = $1,000)pays interest on June 30 and December 31. It is callable at a price of 105 percent together with accrued interest. Suppose the company decides to call the bonds on September 30. What amount must it pay for each bond?
A)$1,000.00
B)$1,037.50
C)$1,062.50
D)$1,050.00

Question

Quizplus · Accepted Answer

Since the bonds were called on September 30, there will be accrued interest for 9 months (from December 31 to September 30).

Accrued interest = (5% x $1,000) x (9 / 12) = $37.50

The price the company must pay for each bond is: 
$1,000 x 105% + $37.50 = $1,062.50

Therefore, the answer is C.

A 5 Percent Debenture (Face Value = $1,000)pays Interest on June