Question

On January 1, Sustainable Energy Corporation issues bonds that have a $100,000 par value, mature in 8 years, and pay 12% interest per year. Interest payments are paid to bondholders semiannually on June 30 and December 31. How much interest does Sustainable Energy Corporation pay to bondholders every six months if the bonds are sold at par?

a. $1,200
b. $3,000
c. $6,000
d. $12,000
e. $100,000

Answer 1

Answer:

c. $6,000

Explanation:

The semiannual interest payable to bondholders every six months is computed using the semiannual coupon payment formula below:

semiannual coupon payment=face value*coupon rate*6/12

face value of the bonds=$100,000

coupon rate=12%

6/12 symbolizes a six-month payment

semiannual coupon payment=$100,000*12%*6/12

semiannual coupon payment=$100,000*6%

semiannual coupon payment=$6,000

The $6,000 would be every 30 June and 31 December for 8 years during the bonds' life