A company issues 7%, 7-year bonds with a par value of $170,000 on January 1 at a price of $179,602, when the market rate of interest was 6%. The bonds pay interest semiannually. The amount of each semiannual interest payment is:

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05-07-2022
Business

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A company issues 7%, 7-year bonds with a par value of $170,000 on January 1 at a price of $179,602, when the market rate of interest was 6%. The bonds pay interest semiannually. The amount of each semiannual interest payment is:

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abdulmajeedabiodunac abdulmajeedabiodunac · Answer 1 · 2022-07-11T11:35:20-04:00

The amount of each semiannual interest payment is $5,950

Compute the amount payable semiannually as interest?

The amount of each semiannual interest payment means the amount the company, the bond issuer would pay as cash interest to bondholders every six months, which is a function of the bond coupon rate of 7%, the par value as shown below:

semiannual interest payment=coupon rate*par value*6/12

coupon rate=7%(7% bond means coupon rate is 7%)

par value=face value=$170,000

6/12 implies that the coupon payment is semiannual. not for a full year

semiannual interest payment=7%*$170,000*6/12

semiannual interest payment=$5,950

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