On January 2,20x5,Fresh Inc.issued 20-year bonds payable with a face value of $1,000,000 and a face interest rate of 10 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

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Quizplus · Accepted Answer

The face value of the bond is $1,000,000 with a face interest rate of 10%. This means that the company will pay $100,000 in interest annually ($1,000,000 x 10%). Since interest is paid semi-annually, the periodic interest payment used in calculating the present value of the bond should be half of the annual interest payment, which is $50,000 ($100,000 ÷ 2). Therefore, choice B is the correct answer.