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A Five-Year, $500,000 Bond Was Issued on 1/1/13

Question 74

Multiple Choice

A five-year, $500,000 bond was issued on 1/1/13. The stated rate of interest was 8%, and the effective rate of interest was 10%. The interest is paid semiannually. Which of the following statements is correct?

A) This bond was issued at a premium, and the semiannual cash payment is $25,000 per period.
B) This bond was issued at a discount, and the annual interest expense is $40,000.
C) This bond was issued at a discount, and the semiannual cash payment is $20,000 per period.
D) This bond was issued at a premium, and the annual interest expense is $40,000.

Correct Answer: