Blanding Company issues $1 000 000 of 8%, 10- year debentures at 98 on 28 February 2013. The debenture pays interest on 28 February and 31 August. The market rate of interest on the issue date was 10%. On 31 August 2013, how much cash did Blanding pay out to debenture holders?
A)$41 000
B)$40 000
C)$39 000
D)$80 000

Question

Quizplus · Accepted Answer

The debentures have a face value of $1,000,000 with an 8% annual interest rate. Interest is paid semi-annually, so each payment is 4% of the face value. Therefore, the cash paid out on 31 August 2013 is 4% of $1,000,000, which is $40,000.

Blanding Company Issues $1 000 000 of 8%, 10- Year