Question

Morgan Company issues 8%, 20-year bonds with a par value of $740,000 that pay interest semi-annually. The current market rate is 7%. The amount of interest owed to the bondholders for each semiannual interest payment is:_________.

Answer 1

Answer:

The interest amount is $29600.

Explanation:

Below are the following given values:

The par value of bonds that Morgan  company issues = $740000

Interest paid = semi annually  

Current interest rate = 7%

Now we have to find the total amount of interest at 8% that is compounded semiannually.  

Below is the calculation of the interest amount.

Amount of interest for each semi-annual period: = face value × Coupon rate × 0.5

Here we multiply with 0.5 because interest is semi-annually.

Total interest = $740,000 × 8% × 0.5

Total interest = $29,600