Question

Mr. Davis purchased fifty $1,000 bonds at 96.50. The annual interest rate is 8.5%. Find the amount of each semi-annual interest payment.

$4,250
$2,125
$1,062.50
$3,354.75
None of these choices are correct.

Answer 1

$2,125

Explanation:

Semi-annual interest payment is also known as the semi-annual coupon payment.

Semi-annual interest payment = Semi-annual interest rate * Face value

Semi-annual interest rate = (Annual interest rate)/2 = (8.5% / 2) = 4.25% or 0.0425 as a decimal.

Face value = $1000

Semi-annual interest payment (for 1 bond) = 0.0425*1000 = $42.5

Next,

there are 50 bonds therefore, the total semi-annual interest = 42.5*50

= $2,125