Question

A company issues 8% bonds with a par value of $40,000 at par on January 1. The market rate on the date of issuance was 7%. 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

$1,600

Step-by-step explanation:

Cash paid on 1 July is calculated as below:

Cash paid = Face value * Coupon rate *1/2

Cash paid = $40,000 * 8% * 1/2

Cash paid = $40,000 * 0.08 * 0.5

Cash paid = $1,600