Question

A company issues 9% bonds with a par value of $110,000 at par on January 1. The market rate on the date of issuance was 8%. The bonds pay interest semiannually on January 1 and July 1. The cash paid on July 1 to the bond holder(s) is:

Answer 1

Answer: $4950

Explanation:

From the question, we are informed that a company issues 9% bonds with a par value of $110,000 at par on January 1 and that the market rate on the date of issuance was 8% and also that the bonds pay interest semiannually on January 1 and July 1.

There is no discount on the bonds payable because they are issues at par. Therefore, the cash paid on July 1 to the bond holders will be:

= $110,000 x 9% x 6/12

= $110,000 x 9/100 x 6/12

= $110,000 x 0.09 x 0.5

= $4,950