Question

What is the purpose of a semiannual interest discount account bond?

1) To calculate the carrying interest
2) To determine the payment expense
3) To amortize the balance amount
4) To calculate the interest date

Answer 1

The purpose of a semiannual interest discount account bond is to determine the payment expense. This is calculated by dividing the annual coupon rate by two and multiplying it by the face value of the bond.

Step-by-step explanation:

The purpose of a semiannual interest discount account bond is to determine the payment expense.

When a bond is issued, it has a face value and a coupon rate, which represents the interest rate. This coupon rate is usually paid semiannually, meaning it is paid every six months. With a semiannual interest discount account bond, the payment expense is calculated by dividing the annual coupon rate by two and multiplying it by the face value.

For example, if a bond has a face value of $1,000 and a coupon rate of 8%, the semiannual payment expense would be $40 ($1,000 × 0.08 × 0.5). This means that every six months, the bondholder would receive a payment of $40.