Final answer:
The annual interest payment on Marigold Corp's $1,200, 9% bonds issued at 98 is $108. To calculate this, multiply the face value of the bond by the interest rate. The answer choice that matches this calculation is 1) $108.
Step-by-step explanation:
The question you've asked revolves around determining the annual interest payment for Marigold Corp bonds that were issued in 2022. The bonds have a face value of $1,200 and an annual interest rate of 9%, and the interest is payable annually. Calculating the annual interest payment for a bond is a straightforward process: simply multiply the face value of the bond by the interest rate.
In your case, the annual interest payment can be calculated as follows:
$1,200 (face value) × 0.09 (interest rate) = $108
Therefore, the annual interest payment on these bonds is $108, which corresponds to choice 1) $108.
Regarding the provided information on bond pricing in different market interest rate scenarios, it's important to differentiate between the coupon payment, which is a function of the bond's face value and coupon rate, and the bond's price, which is influenced by the market interest rate. If a bond's coupon rate is lower than market interest rates, the bond's price will typically be less than its face value, as seen in the example with a bond valued at $964 when the market rate is 12%. This reflects the general principle that a bond's value will decrease when market interest rates rise above its coupon rate.