A company has an investment in 9% bonds with a par value of $100,000 that pays interest on October 1 and April 1.The amount of interest accrued on December 31 (the company's year-end)would be:
A)$750.
B)$1,500.
C)$2,250.
D)$4,500.
E)$9,000.

Question

Quizplus · Accepted Answer

The interest on the bond is calculated based on the face value of the bond, which is $100,000, and the coupon rate, which is 9%.

The formula for calculating the interest accrued is:

Interest = Face Value x Coupon Rate x Time

Time is the fraction of the year that has passed since the last coupon payment, which in this case is from April 1 to December 31, or 9 months out of a 12-month year.

Using the formula:

Interest = $100,000 x 0.09 x 9/12 = $6,750/2 = $3,375

The bond pays interest twice a year, so the amount of interest accrued on December 31 would be half of this amount, or $1,687.50.

Therefore, the best choice is C) $2,250.

A Company Has an Investment in 9% Bonds with a Par