On January 1, 2013, $1,000,000, 5-year, 5% bonds, were issued for $957,349. The interest rate in effect when the bonds were issued was 6%. Interest is paid semi-annually on January 1 and July 1. How much interest is paid at each interest payment date?
A) $25,000
B) $50,000
C) $30,000
D) $60,000

Question

Quizplus · Accepted Answer

The interest paid at each payment date is calculated based on the face value of the bonds and the stated interest rate. Since the bonds have a face value of $1,000,000 and a stated interest rate of 5%, the annual interest is 5% of $1,000,000, which equals $50,000. Since interest is paid semi-annually, each payment is half of the annual interest, which is $50,000 / 2 = $25,000.

On January 1, 2013, $1,000,000, 5-Year, 5% Bonds, Were Issued