Morgan Company issues 9%,20-year bonds with a par value of $750,000 that pay interest semiannually.The current market rate is 8%.The amount paid to the bondholders for each semiannual interest payment is:
A)$60,000.
B)$33,750.
C)$67,500.
D)$30,000.
E)$375,000.

Question

Quizplus · Accepted Answer

The semiannual coupon rate is calculated as (9% / 2) = 4.5%
The semiannual market rate is (8% / 2) = 4%
Using the present value of an annuity formula, the amount paid to bondholders for each semiannual interest payment is:
Coupon payment = (Coupon rate * Par value) / Number of payments per year
= (4.5% * $750,000) / 2
= $33,750. Therefore, the correct answer is B.

Morgan Company Issues 9%,20-Year Bonds with a Par Value of $750,000