A corporation issued $150,000 of 10-year bonds at the stated rate of 8%, with interest payable semiannually. How much cash will the bond investors receive at the end of the first interest period?

Question

Quizplus · Accepted Answer

To determine how much cash the bond investors will receive at the end of the first interest period, we need to calculate the interest payment based on the stated annual interest rate, the principal amount of the bonds, and the frequency of the interest payments.
Here are the details we have:
- Principal amount of bonds issued: $150,000
- Stated annual interest rate: 8%
- Interest payment frequency: Semiannually (twice a year)
First, we calculate the semiannual interest payment by dividing the annual interest rate by 2 (since interest is paid twice a year) and then applying it to the principal amount.
Semiannual interest rate = Annual interest rate / 2
Semiannual interest rate = 8% / 2
Semiannual interest rate = 4%
Now, we calculate the semiannual interest payment:
Interest payment per period = Principal amount × Semiannual interest rate
Interest payment per period = $150,000 × 4%
Interest payment per period = $150,000 × 0.04
Interest payment per period = $6,000
Therefore, at the end of the first interest period, the bond investors will receive $6,000 in cash.
The correct answer is b. $6,000.

A Corporation Issued $150,000 of 10-Year Bonds at the Stated