Question

TMC issued $65 million of its 12% bonds on April 1, 2021 at 98, reflecting a market rate of interest of 14%, plus accrued interest. The bonds are dated January 1, 2021, and mature on December 31, 2040. Interest is payable semiannually on June 30 and December 31. What amount did TMC receive from the bond issuance? (Do not round Intermediate calculations. Round your final answer to 2 decimal places.)

Answer 1

12% is the coupon rate at which TMC will pay the interest and 14% is the yield rate, which is the rate of return for the investor. TMC has issued $65 m bonds @ 12% payable semiannually on June 30 and December 31.

The bond is issued on 1st April so there is accrued interest (Interest which is due but not received, in this case paid), and we need to compute the amount TMC received from bond issuance.

The amount will include the no.of bonds @98 per bond and reduced by the 3 months accrued interest for the period January to March. Face value of the bond is always 100.

No.of Bonds = $65,000,000/100

=650,000

Amount of accrued interest= $65,000,000*12%*3/12

=$1,950,000

Amount received on bond issuance= {650,000*98} - $1,950,000

=$61,750,000

Therefore, correct choice is 'D'