On May 5,2017,Bennix sold $1,000,000 of five-year,3% bonds for $900,500. From the proceeds,the company paid fees of 100,000.Interest is payable semi-annually on May 5 and November 5.What is the effective rate of interest (round to 2 decimal places)?
A) 3.00%
B) 3.72 %
C) 3.95%
D) 6.27%

Question

Quizplus · Accepted Answer

C) The net proceeds (PV) to Bennix are $800,500 ($900,500 - $100,000);
N = 10 (5 × 2); PMT = $15,000
10 N, 800,500 +/- PV, 1000000 FV, 15000 PMT, CPT I/Y I/Y = 3.954% = 3.95%

On May 5,2017,Bennix Sold $1,000,000 of Five-Year,3% Bonds for $900,500