Adonis Corporation issued 10-year, 7% bonds with a par value of $190,000. Interest is paid semiannually....
Adonis Corporation issued 10-year, 7% bonds with a par value of $190,000. Interest is paid semiannually. The market rate on the issue date was 6%. Adonis received $204,138 in cash proceeds. Which of the following statements is true?
Multiple Choice
A. Adonis must pay $190,000 at maturity and no interest payments.
B. Adonis must pay $190,000 at maturity plus 20 interest payments of $5,700 each.
C. Adonis must pay $190,000 at maturity plus 20 interest payments of $6,650 each.
D.Adonis must pay $204,138 at maturity plus 20 interest payments of $6,650 each.
E. Adonis must pay $204,138 at maturity and no interest payments.
Homework Answers
$204,138 is received in cash proceeds, we need to repay only the par value on maturity.
In this cash $190,000 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 payments are made.
=>10 years * 2 semi annual interest payments
=>20 interest payments.
each semi annual interest payment = 190,000*(7%)*(1/2)
= $6,650
Therefore option c( Adonis must pay $190,000 at maturity plus 20 interest payments of $6,650 each.) is correct
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