Question

Poor Company issued 10, 3-year 8% bonds at 110. What is the interest expense for 6 months?

a) $880
b) $825
c) $770
d) $715

Answer 1

The interest expense for 6 months on the 3-year 8% bonds issued by Poor Company is $880.

Step-by-step explanation:

The interest expense for 6 months on the 3-year 8% bonds issued by Poor Company can be calculated using the formula:

Interest Expense = Bond Principal * Interest Rate * Time Period

In this case, the Bond Principal is $10, multiplied by 110% (110/100), since the bonds were issued at a price of 110. The Interest Rate is 8% per year, so we divide it by 2 to get the semi-annual rate. The Time Period is 6 months, which is equivalent to 0.5 years.

Therefore, the calculation is: Interest Expense = $10 * (110/100) * (8/2) * 0.5 = $8.80, rounded to the nearest dollar.

So, the correct answer is option a) $880.