Adonis Corporation issued 10-year, 11% bonds with a par value of $170,000. Inter

Question

Adonis Corporation issued 10-year, 11% bonds with a par value of $170,000. Interest is paid semiannually. The market rate on the issue date was 10%. Adonis received $180,595 in cash proceeds. Which of the following statements is true?

A. Adidas must pay $170,000 at maturity plus 20 interest payments of $9,350 each.

B. Adidas must pay $170,000 at maturity plus 20 interest payments of $8,500 each.

C. Adidas must pay $180,595 at maturity plus 20 interest payments of $9,350 each.

D. Adidas must pay $170,000 at maturity and no interest payments.

E. Adidas must pay $180,595 at maturity and no interest payments.

Please add explanation

Adonis Corporation issued 10-year, 11% bonds with a par value of $170,000. Interest is paid semiannually. The market rate on the issue date was 10%. Adonis received $180,595 in cash proceeds. Which of the following statements is true?

Explanation / Answer

D is correct: Adidas must pay $170,000 at maturity and no interest payments. Adidas cannot be asked to pay more than the par value of the bonds at maturity. All the interest must have already been paid.

A is correct: The interest works out to $9350 half yearly.

B is incorrect: the figure of interest is incorrect.

C is incorrect: the amount payable at maturity is the par value of the bonds.

D is correct: The par value of the bonds is the amount payable at maturity.

E is incorrect: The par value of the bonds must be paid at maturity.Interest must have been paid six-monthly.

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