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Desert Company issued $3,158,061 of 12% bonds on January 1, 2021. The market rate of interest at that time was 9%. The bonds pay interest quarterly each March 31, June 30, September 30, and December 31. What is the amount of the cash payment Desert is legally obligated to pay its creditor each quarter?

Sagot :

Shahzaibfaraz

Answer:

Quarterly Interest Payment = $94741.83

Explanation:

The amount of interest payment made by coupon bonds depends on the coupon rate they carry regardless of what the interest rate in market is. Thus Desert will have to pay annual coupon rate of 12% of the face value of the bond. However, as the coupon payments are made quarterly, the quarterly interest that will be paid by Desert will be,

Quarterly Interest Payment = 3158061 * 12% * 1/4  

Quarterly Interest Payment = $94741.83

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