A 5% debenture (face value = $1000)pays interest on June 30 and December 31.It is callable at a price of 105% together with accrued interest.Suppose the company decides to call the bonds on September 30.What amount must it pay for each bond?
A)$1000.00
B)$1037.50
C)$1062.50
D)$1050.00

Question

Quizplus · Accepted Answer

The bonds are callable at a price of 105% together with accrued interest, which means the company must pay 105% of the face value plus the interest accrued since the previous payment date.

Since the bonds are being called on September 30, the interest payment due on June 30 has already been paid, and only the interest for the period from July 1 to September 30 needs to be added. This is 3/12 of the annual interest rate of 5%, or 1.25%.

So the total amount due for each bond is: 
$1000 x 105% + $1000 x 1.25% = $1062.50

Therefore, the best choice is C.

A 5% Debenture (Face Value = $1000)pays Interest on June