Question

Universe of Fun issues $870,000, 8% bonds on January 1, 2024, maturing in 10 years. The market interest rate is 9%, and the bonds issue for $813,415. What is the semiannual interest payment?

a. $43,500
b. $34,800
c. $34,854.50
d. $38,341.50

Answer 1

The semiannual interest payment on the bond is $34,800.

Step-by-step explanation:

To calculate the semiannual interest payment, we need to determine the face value of the bond and multiply it by the semiannual interest rate. The face value of the bond is the amount it will be redeemed for at maturity, which is $870,000. The semiannual interest rate is half of the annual interest rate, so we divide 8% by 2 to get 4%. Therefore, the semiannual interest payment is $870,000 * 4% = $34,800.