Clarington issued 15 year bonds in the amount of $500 000. Interest on the bonds is 2.2% payable annually. What is the promised payment at the end of each year?

Question

Quizplus · Accepted Answer

To find the promised payment at the end of each year, we need to multiply the face value of the bond ($500 000) by the annual interest rate (2.2%).

$500 000 x 0.022 = $11 000

However, the question asks for the payment at the end of each year, not the interest payment. Since the interest is payable annually, it needs to be added to the face value of the bond and then divided by the number of years (15) to get the annual payment.

($500 000 + $11 000) ÷ 15 = $34 067

Therefore, the promised payment at the end of each year is $34 067, which is closest to answer choice A, $11 100. However, there is a mistake in the answer choices as none of the options match the correct answer.

Clarington Issued 15 Year Bonds in the Amount of $500