On January 1,2011,Nadir Company issued $1,000,000 of 6%,20-year bonds when the market rate of interest was 5%.The bonds pay interest annually on December 31.How much cash will bondholders receive on December 31,2011,the first interest payment date?

Question

Quizplus · Accepted Answer

The bondholders will receive cash based on the stated (coupon) interest rate of the bond, which is 6% of the face value ($1,000,000). Therefore, the cash interest payment is 0.06 * $1,000,000 = $60,000. The market rate of interest affects the price of the bond at issuance but does not affect the cash paid for interest.

On January 1,2011,Nadir Company Issued $1,000,000 of 6%,20-Year Bonds When