A company issues 9%,5-year bonds with a par value of $100,000 on January 1 at a price of $106,160,when the market rate of interest was 8%.The bonds pay interest semiannually.The amount of each semiannual interest payment is:
A)$9,000.
B)$8,000.
C)$4,000.
D)$4,500.
E)$0.

Question

Quizplus · Accepted Answer

The semiannual interest payment is calculated as follows: 
Interest payment = Par value x Coupon rate x Time period 
Since the coupon rate is 9% and the par value is $100,000, the annual interest payment is $9,000 ($100,000 x 9%). 
Since the bonds pay interest semiannually, the time period is 6 months (0.5 years). 
Therefore, the semiannual interest payment is $4,500 ($9,000 x 0.5). 
Hence, the correct answer is D.

A Company Issues 9%,5-Year Bonds with a Par Value of $100,000