On January 2,2012,Dock Master Construction,Inc.issued $500,000,10-year bonds for $574,540.The bonds pay interest on June 30 and December 31.The face rate is 8% and the market rate is 6%.The annual cash payment (paid in semiannual payments)on the bonds is

Question

Quizplus · Accepted Answer

The annual interest payment can be calculated using the following formula:

Annual interest payment = Face value of the bond * Coupon rate
where the coupon rate is the face rate of 8%.

For $500,000 bond, the annual interest payment is:
= $500,000 * 8%
= $40,000

Since the bonds pay interest semi-annually, the payment can be divided into two equal parts of $20,000 each, to be paid on June 30 and December 31. Therefore, the annual cash payment (paid in semi-annual payments) on the bonds is $40,000.