Question

adonis corporation issued 10-year, 9% bonds with a par value of $150,000. interest is paid semiannually. the market rate on the issue date was 8%. adonis received $160,195 in cash proceeds. which of the following statements is true? multiple choice adonis must pay $150,000 at maturity plus 20 interest payments of $6,000 each. adonis must pay $160,195 at maturity plus 20 interest payments of $6,750 each. adonis must pay $160,195 at maturity and no interest payments. adonis must pay $150,000 at maturity plus 20 interest payments of $6,750 each. adonis must pay $150,000 at maturity and no interest payments.

Answer 1

Adonis must pay $150,000 at maturity plus 20 interest payments of $6,750 each.

Step-by-step explanation:

The correct statement is: Adonis must pay $150,000 at maturity plus 20 interest payments of $6,750 each.

When Adonis Corporation issued the 10-year, 9% bonds, it received $160,195 in cash proceeds.

The market rate on the issue date was 8%. The difference between the market rate and the coupon rate determines the selling price of the bonds.

Since the market rate was lower than the coupon rate, the bonds were sold at a premium.

The premium is equal to the difference between the cash proceeds and the par value of the bonds, which in this case is $10,195 ($160,195 - $150,000).

Since the interest is paid semiannually, there will be 20 interest payments over the 10-year period.

The interest payments are calculated based on the coupon rate and the selling price of the bonds. Each interest payment will be $6,750 ($10,195 / 20).