Question

Adonis Corporation issued 10-year, 8% bonds with a par value of $200,000. Interest is paid semiannually. The market rate on the issue date was 7.5%. Adonis received $206,948 in cash proceeds. Which of the following statements is true?

Answer 1

Answer:

This question is incomplete as the options to choose from are not included. I'll give explanations below to help you answer it.

Explanation:

This type of bond is a coupon paying bond. This bond pays interest know as a coupon payment and in this case semiannually ,which means every 6 months and 2 payments per year. In dollar amounts, the 6 month coupon payment would be;

Coupon payment = coupon rate * Par value

coupon rate = 8% /2 = 4% or 0.04 as a decimal

par value = 200,000

So , Coupon payment = 0.04*200,000

= $8,000 every six months

At maturity of the bond; which is 10 years later or 20 semi-annual periods later, the bond also pays the Par value amount of 200,000