A company issues 9%, 5-year bonds with a par value of $100,000 on January 1 at a price of $106,160, when the market rate of interest was 8%. The bonds pay interest semiannually. The amount of each semiannual interest payment is:
A) $4,000.
B) $4,500.
C) $9,000.
D) $8,000.
E) $0.

Question

Quizplus · Accepted Answer

The annual interest payment on the bonds is $9,000 ($100,000 x 9%). Since interest is paid semiannually, the semiannual interest payment is $4,500 ($9,000/2). Therefore, the answer is B.

A Company Issues 9%, 5-Year Bonds with a Par Value