Solsberry has sold a twenty-year serial bond issue with a face value of $15 million. The average maturity of the issue is fifteen years. Total interest to be paid on the bonds, payable semi-annually, equals $12,375 thousand. What is the net interest cost NIC) of the issue?
A) The NIC cannot be computed from the data provided here.
B) 5.5%
C) 4.125%
D) 8.25%

Question

Quizplus · Accepted Answer

The Net Interest Cost (NIC) is calculated by dividing the total interest payments by the product of the number of years to maturity and the face value of the bond issue, then multiplying by 100 to get a percentage. Here, total interest is $12,375,000, the face value is $15,000,000, and the average maturity is 15 years. NIC = ($12,375,000 / ($15,000,000 * 15)) * 100 = 5.5%.

Solsberry Has Sold a Twenty-Year Serial Bond Issue with a Face