Question

a company issues 7%, 8-year bonds with a par value of $210,000 on january 1 at a price of $223,189, when the market rate of interest was 6%. the bonds pay interest semiannually. the amount of each semiannual interest payment is:

Answer 1

The amount of each semiannual interest payment for the 7%, 8-year bonds is $7,350.

Step-by-step explanation:

Semi-annual is also known as bi-annual, is when an event occurs twice a year, every six months. In a business environment, semiannual is something that is recurring like payments or an interest rate. Semiannual and biennial are sometimes confused with each other.

For instance, say you own a bond with a par value of $1,000 whose current price is $900. Its coupon rate is 2% and it matures five years from now. To calculate the semi-annual bond payment, take 2% of the par value of $1,000, or $20, and divide it by two. The bond therefore pays $10 semiannually.

The amount of each semiannual interest payment can be calculated using the formula:

Interest Payment = Par Value × Coupon Rate ÷ Number of Coupon Periods per Year

In this case, the par value is $210,000, the coupon rate is 7%, and there are 2 coupon periods per year (since the bonds pay interest semiannually).

Therefore, the interest payment is:

$210,000 × 7% ÷ 2 = $7,350