Megan invested in ten bonds of total face value of $1,000,issued by Zen Corporation.The bonds paid 10 percent semiannual interest till the maturity date.Which of the following is the value of interest earned in the first installment on a single bond?

Question

Quizplus · Accepted Answer

The face value of a single bond is $1,000/10 = $100. 
The annual interest rate is 10%, and it is paid semiannually, so the per-period interest rate is 5%.
Therefore, the interest earned in the first installment on a single bond is:
$100 x 0.05 = $5
Since the interest is paid semiannually, the interest earned in the first installment on a single bond is only half of that amount:
$5/2 = $2.50
Therefore, the correct answer is A) $50 (i.e., ten bonds x $2.50 per bond).

Megan Invested in Ten Bonds of Total Face Value of $1,000,issued