Brown Co.issued $100 million of its 10% bonds on April 1,2016,at 99 plus accrued interest.The bonds are dated January 1,2016,and mature on December 31,2035.Interest is payable semiannually on June 30 and December 31.What amount did Brown receive from the bond issuance?

Question

Quizplus · Accepted Answer

The bonds were issued at 99 plus accrued interest, meaning that investors paid 99% of the face value of the bonds plus interest since January 1, 2016 (accrued interest). The face value of the bonds is $100 million.

To calculate the accrued interest, count the number of days from January 1, 2016 to April 1, 2016 (91 days) and divide by the number of days in the semiannual period (181 days). Then, multiply by the semiannual interest payment ($10 million = $100 million x 10% x 6/12).

Accrued interest = (91/181) x $10 million = $5 million

The amount Brown received from the bond issuance is:

$100 million x 99% + $5 million = $101.5 million

Therefore, the answer is D) $101.5 million.

Brown CoIssued $100 Million of Its 10% Bonds on April 1,2016,at