Question

New York City is issuing $500,000,000 of general obligation bonds paying interest on January 1st and July 1st of each year until maturity. The dated date of the issue is May 1, 2020. The first payment will be made on January 1st, 2021. A bondholder purchases the issue at the offering. How many months of interest will the first and second payments cover?a. One month for the first payment; eight months for the second payment b. Two months for the first payment; six months for the second payment c. Six months for the first payment; six months for the second payment d. Eight months for the first payment; six months for the second payment

Answer 1

The correct option is D, eight months for the first payment; six months for the second payment

Step-by-step explanation:

From the information provided,it is very clear that interest payment would not made until January 1st 2021,which is 8 months after the date of bond issue.

This means that interest due on July 1st 2020 of two months would be paid together with that which becomes due on 1st January 2021 for six months,hence the first interest payment is for 8 months while the next one would the normal six-month cycle.

As a result,it is convincing enough that option D fits the explanation in all respects.