Using the straight-line method,the semiannual interest expense of a 12%,$300,000 bond for 15 years at 102 would be:

Question

Quizplus · Accepted Answer

First, we need to calculate the annual interest expense:
$300,000 x 12% = $36,000
Next, we can use the straight-line method to calculate the semi-annual interest expense:
($36,000 / 15 years) / 2 = $1,200
Finally, we need to account for the bond being sold at 102% so we multiply by 1.02:
$1,200 x 1.02 = $1,224
Therefore, the semi-annual interest expense is $1,224 and the annual interest expense is $2,448. Multiply the semi-annual interest expense by the number of semi-annual periods in 15 years, which is 30, to get the total interest expense:
$1,224 x 30 = $36,720
Divide by 2 since the bond pays interest semiannually to get the semiannual interest expense:
$36,720 / 2 = $18,360
Therefore, the semiannual interest expense of a 12%, $300,000 bond for 15 years at 102 is $17,800.

Using the Straight-Line Method,the Semiannual Interest Expense of a 12%,$300,000