Question

"The city of Jacksonville, Florida" is issuing $100,000,000 of general obligation bonds paying interest on January 1st and July 1st of each year until maturity. The dated date of the issue is June 1, 2020. The first payment will be made on January 1st, 2021. A bondholder purchases the issue at the offering. The first interest payment is a(n):________.

A. level first interest payment

B. even first interest payment

C. odd first interest payment

D. odd-lot first interest payment

Answer 1

B) even first interest payment

Step-by-step explanation:

Since the investor purchased the bond at the date of issuance (June 1st) and interest will be paid 6 months later on January 1st, the interest payment is said to be even first interest payment. It is called this way because it will cover the period (6 months).

If the investor had purchased the bond at a later date, e.g. July 1st, and then collected interest at January 1st, then he/she would have collected an odd first interest payment. Since the interest didn't cover the complete period of 6 months it should be lower.