Adonis Corporation issued 10-year, 8% bonds with a par value of $200,000. Interest is paid semiannually. The market rate on the issue date was 7.5%. Adonis received $206,948 in cash proceeds. Which of the following statements is true?
A) Adonis must pay $206,948 at maturity plus 20 interest payments of $8,000 each.
B) Adonis must pay $200,000 at maturity plus 20 interest payments of $7,500 each.
C) Adonis must pay $200,000 at maturity and no interest payments.
D) Adonis must pay $206,948 at maturity and no interest payments.
E) Adonis must pay $200,000 at maturity plus 20 interest payments of $8,000 each.

Question

Quizplus · Accepted Answer

Adonis must pay the par value of $200,000 at maturity and make 20 semiannual interest payments of $8,000 each (4% of $200,000), as the bonds have an 8% annual coupon rate.

Adonis Corporation Issued 10-Year, 8% Bonds with a Par Value