A company issues bonds at par on April 1.These 9% bonds have a par value of $100,000 and pay interest annually.April 1 is four months after the most recent interest payment date.How much total cash interest is received on April 1 by the bond issuer?
A)$750
B)$5,250
C)$1,500
D)$3,000
E)$6,000

Question

Quizplus · Accepted Answer

Since the bond pays interest annually and the last interest payment date was four months ago, the bond issuer will receive 9/12 of the annual interest payment. 
9% of $100,000 is $9,000 in annual interest payment. 9/12 of $9,000 is $6,750. 
However, since the bond was issued at par, the bond issuer will only receive half of the interest payment for the first year, which is $6,750/2 = $3,375. 
Therefore, the total cash interest received on April 1 is $3,000 (rounded to the nearest thousand). 
The answer is D.

A Company Issues Bonds at Par on April 1