On January 1, 20X7, Tio Rinto Aluminum Co. issued a $500,000, 6%, 8-year bond with interest payable semi-annually at par. The issuance price of the bond and the first period's interest expense are closest to
$\begin{array} { lr r }
& \text { Issue price } & \text { Interest expense } \\end{array}$
a) $\begin{array} { lr r } & \$ 500,000 & \$ 15,000 \\end{array}$
b) $\begin{array} { lr r } & \$ 500,000 & \$ 30,000 \\end{array}$
c)$\begin{array} { lr r } & \$ 470,000 & \$ 15,000 \\end{array}$
d) $\begin{array} { lr r } & \$ 470,000 & \$ 30,000 \\end{array}$

Question

On January 1, 20X7, Tio Rinto Aluminum Co. issued a $500,000, 6%, 8-year bond with interest payable semi-annually at par. The issuance price of the bond and the first period's interest expense are closest to
 $\begin{array} { lr  r  } 
 & \text { Issue price } & \text { Interest expense } \\end{array}$
a) $\begin{array} { lr  r  } & \$ 500,000 & \$ 15,000 \\end{array}$
b) $\begin{array} { lr  r  } & \$ 500,000 & \$ 30,000 \\end{array}$
c)$\begin{array} { lr  r  }  & \$ 470,000 & \$ 15,000 \\end{array}$
 d) $\begin{array} { lr  r  } & \$ 470,000 & \$ 30,000 \\end{array}$

Quizplus · Accepted Answer

The bond was issued at par, meaning its issue price is exactly $500,000. Since the bond has a 6% annual interest rate and it's payable semi-annually, the first period's interest expense is 3% of $500,000, which is $15,000.

On January 1, 20X7, Tio Rinto Aluminum Co Issue price Interest expense \begin{array} { lr r } & \text { Issue price } & \text { Interest expense } \\\end{array}​ Issue price ​ Interest expense ​

On January 1, 20X7, Tio Rinto Aluminum Co $\begin{array} { lr r } & \text { Issue price } & \text { Interest expense } \\\end{array}$