Using the straight-line method,the semiannual interest expense of a 10%,$200,000 bond for 10 years at 102 would be:

Question

Quizplus · Accepted Answer

The straight-line method means that the interest expense each period will be the same amount.

Step 1: Find the annual interest payment
Coupon rate = 10%
Face value = $200,000
Coupon payment = 10% x $200,000 = $20,000
Since the bond is at 102, we need to adjust the coupon payment:
Adjusted coupon payment = Coupon payment x (100% + 2%) = $20,000 x 1.02 = $20,400
Annual interest payment = $20,400

Step 2: Find the semiannual interest payment
Semiannual interest payment = Annual interest payment / 2 = $20,400/2 = $10,200

Therefore, the semiannual interest expense of the bond is $10,200. The answer is (C).

Using the Straight-Line Method,the Semiannual Interest Expense of a 10%,$200,000