A company issues 9%, 5-year bonds with a par value of $140,000 on January 1 at a price of $145,678, when the market rate of inte

Question

PSYCHO15rus [73]

3 years ago

6

A company issues 9%, 5-year bonds with a par value of $140,000 on January 1 at a price of $145,678, when the market rate of inte

rest was 8%. The bonds pay interest semiannually. The amount of each semiannual interest payment is:

Business

1 answer:

deff fn [24] · Answer 1 · 2022-04-28T12:48:47+03:00

Answer:

Semi annual interest payment = $6300

Explanation:

The interest payment of bond is calculated based on the coupon rate of the bond. The coupon rate is the interest rate carried by the bond. This rate can be different from the market interest rate and bond's yield to maturity. The interest payment is calculated by multiplying the coupon rate by the face value of the bond.

Annual interest payment = Coupon rate * Par value

For a semi annual bond, we calculate the interest payment in the same way as the annual bond. However, we just have to adjust the coupon rate for the semi annual period. We multiply the coupon rate by 6/12 as it is a semi annual payment.

Semi annual interest payment = Coupon rate * 6/12 * Par Value

Semi annual interest payment = 0.09 * 6/12 * 140000

Semi annual interest payment = $6300