Help Save & Exit Su Adonis Corporation issued 10-year, 11% bonds with a par valu

Question

Help Save & Exit Su Adonis Corporation issued 10-year, 11% bonds with a par value of $210,000. Interest is paid semiannually. The market rate on the issue date was 10%. Adonis received $223,087 in cash proceeds, which of the following statements is true? Multiple Choice Adonis must pay $223,087 at maturity and no interest payments. Adonis must pay $223,087 at maturity plus 20 interest payments of $11,550 each. Adonis must pay $210,000 at maturity plus 20 interest payments of $10,500 each. 11 of 20 Next > Prev 3

Explanation / Answer

D. Adonis must pay $210,000 on maturity plus 20 interest payments of $11,550 each.

NOte:

Though $223,087 is received in cash proceeds, we need to repay only the par value on maturity.

In this cash $210,000 being the par value will be repaid on maturity.

20 interest payments are made since, the bond is for 10 years and semi annual interest payements are made.

=>10 years * 2 semi annual interst payments

=>20 interest payments.

each semi annual interest payment = $210,000 * (11%) *(1/2)

=>$11,550.

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