How to Issue Bonds and Make Semiannual Interest Payments
How much will the bonds be issued for, and when are the first two semiannual interest payments due?
What is the face value of the bonds being issued?
How is the semiannual interest payment calculated?
Answer:
The bonds will be issued at $664,065 on January 1, 2024, with a face value of $1,000 each. The first semiannual interest payment is due on June 30, 2024, and the second payment is due on December 31, 2024.
Explanation: When the market interest rate is 7%, the bonds will be issued at $664,065 on January 1, 2024. This means the company will borrow $1,000,000 worth of bonds from investors at that price. Each bond has a face value of $1,000.
The semiannual interest payment is calculated by taking half of the annual interest rate, as it is a semiannual payment. In this case, the annual interest rate is 7%. Therefore, the semiannual interest payment is calculated as follows: $1,000 * 7% / 2 = $35.
The first interest payment of $35 per bond is due on June 30, 2024, and the second payment will be due on December 31, 2024. These payments are made to the bondholders as compensation for lending money to the issuer.