Question

On March 2, 2019, 20-year, 6 percent, general obligation serial bonds were issued at the face amount of $3,000,000. Interest of 6 percent per annum is due semiannually on March 1 and September 1. The first payment of $150,000 for redemption of principal is due on March 1, 2020. Fiscal year-end occurs on December 31. What is the interest expenditure for the fiscal year ending December 31, 2019

Answer 1

The answer is $90,000

Step-by-step explanation:

Interest rate is 6percent

Principal is $3,000,000

Annual repayment:

6percent of $3,000,000

= $180,000

Therefore, semi annual(2 times a year) will be:

$180,000 ÷ 2

$90,000

The bond was issued on March 2, 2019. And the payment is semiannual(meaning the interest will be paid two times a year). And the payment date for interest are March 1 and September 1 of every year till it expires.

The payment for March 1 2019 is not possible because the bond was issued March 2, 2019 and the interest payment has not started. Therefore, the next repayment of $90,000 is September 1. And this will be the interest expenditure for the fiscal year ending December 31, 2019