A graphics design company issued bonds in the amount of $1,000,000 with a stated interest rate of 8%. If the interest is paid semiannually and the bonds are due in 10 years, what would be the total amount of interest paid over the life of the bonds?
A)$1,000,000
B)$400,000
C)$800,000
D)$80,000

Question

Quizplus · Accepted Answer

The total interest paid will be the sum of interest paid for each semiannual period over the 10-year term. Each semiannual period will have an interest payment of:

Interest Payment = (Principal) x (Interest Rate) / 2

= ($1,000,000) x (0.08) / 2

= $40,000

Over the 10-year term, there will be 20 semiannual periods, so the total interest paid will be:

Total Interest = (Interest Payment) x (Number of Periods)

= $40,000 x 20

= $800,000

A Graphics Design Company Issued Bonds in the Amount of $1,000,000