On April 1,2013,Jared Enterprises issues bonds dated January 1,2013,that have a $2,430,000 par value,mature in 20 years,and pay 7% interest semiannually on June 30 and December 31.The bonds are sold at par plus three months' accrued interest.What is the total amount of cash Jared Enterprises will collect on April 1,2013?
A)$2,600,100
B)$2,430,000
C)$2,472,525
D)$2,750,000
E)$2,515,050

Question

Quizplus · Accepted Answer

Since the bonds are sold "at par plus three months' accrued interest," this means the buyer will pay for the bonds at their face value plus the interest that has accrued for three months (from January 1 to April 1). Since the bonds pay 7% annual interest and pay semiannually, the semiannual interest rate is 3.5% (7%/2). Therefore, the interest accrued for three months is 0.875% (3.5%/4). The par value of the bonds is $2,430,000, so the accrued interest is $2,430,000 x 0.00875 = $21,262.50. Thus, the total amount of cash collected on April 1, 2013, is $2,430,000 + $21,262.50 = $2,472,525. Therefore, the best choice is C.

On April 1,2013,Jared Enterprises Issues Bonds Dated January 1,2013,that Have