Question

on january 1, forward company issues bonds that have a $25,000 par value, mature in 4 years, and pay 7% interest per year. interest payments are paid to bondholders semiannually on june 30 and december 31. how much interest does forward company pay to bondholders every six months if the bonds are sold at par?

Answer 1

Forward Company pays $875 every six months to bondholders if the bonds are sold at par.

Step-by-step explanation:

In this case, Forward Company issues bonds with a $25,000 par value, maturing in 4 years, and paying 7% interest per year.

Since interest payments are made semiannually on June 30 and December 31, the interest payments to bondholders would be made every six months.

In this scenario, since the bonds are sold at par, the interest paid every six months would be:

Interest Payment = (Par Value * Interest Rate) / 2

Interest Payment = ($25,000 * 0.07) / 2

Interest Payment = $875 every six months.