A 5 percent debenture (face value = $1,000) pays interest on June 30 and December 31.It is callable at a price of 105 percent together with accrued interest.Suppose the company decides to call the bonds on September 30.What amount must it pay for each bond?

Question

Quizplus · Accepted Answer

The interest payment for the period from June 30 to September 30 will be (5/100)*$1,000*(92/360) = $12.78
Therefore, the accrued interest on September 30 will be $12.78.
The call price is 105% of the face value, which is $1,050.
Adding the accrued interest of $12.78, the company must pay $1,062.78 for each bond.
Therefore, the closest option is C, which is $1,062.50.

A 5 Percent Debenture (Face Value = $1,000) Pays Interest