Question

a company issues 7% bonds with a par value of $230,000 at par on january 1. the market rate on the date of issuance was 6%. the bonds pay interest semi annually on january 1 and july 1. the cash paid on july 1 to the bondholders) is:

Answer 1

The cash paid on July 1 to the bondholders of the 7% bonds with a par value of $230,000 issued at par is $8,050. This figure is calculated by taking the annual interest rate of 7% applied to the par value, divided by 2 for the semi-annual payment schedule.

Step-by-step explanation:

The cash paid on July 1 to the bondholders for the company's 7% bonds with a par value of $230,000 would be the semi-annual interest payment. Because the bonds were issued at par, the interest rate and the market rate do not affect the payment, which is simply calculated as 7% of the par value, divided by 2 (as interest is paid semi-annually).

The calculation is ($230,000 × 7%) / 2. This formula calculates the six-month interest payment by taking the par value, multiplying it by the annual interest rate, and then dividing by two to account for the semi-annual payment structure. Since the bond pays interest twice a year, on January 1 and July 1, for each of these dates, the bondholders receive half of the annual interest. Therefore, the cash paid to bondholders each July 1 and January 1, given the mentioned bond terms, is the same amount, $8,050 until the bond matures or is otherwise extinguished.