On January 2,20x5,Preston Corporation issued 20-year bonds payable with a face value of $300,000 and a face interest rate of 8 percent.The bonds were issued to yield a market interest rate of 9 percent.Interest is payable semi-annually on January 1 and July 1.In calculating the present value of the bond issue of January 2,20x5,the periodic interest payments to be used are

Question

Quizplus · Accepted Answer

The face interest rate of the bonds payable is 8 percent, and the face value of the bonds is $300,000. Therefore, the annual interest payment that Preston Corporation will have to pay is $300,000 x 8% = $24,000. Since interest is payable semi-annually, the periodic interest payment that will be used to calculate the present value of the bond issue is $24,000/2 = $12,000. Therefore, the correct choice is B.

On January 2,20x5,Preston Corporation Issued 20-Year Bonds Payable with a Face