If a corporation issues a 10-year $100,000 8% bond, what is the total that the issuing corporation pays to the bondholder over the next 10 years?
Explanation
Answer: C - The issuing corporation will pay a total of $180,000 in principal and interest to the bondholder over the next 10 years.
Key Takeaway: Interest on a bond is payable semi-annually. To determine the semi-annual interest payment, use this formula: (Face Value x Interest Rate) / 2). In this case, (100,000 x 0.08) / 2 = 4,000. With 20 interest payments to be made, the total interest paid will be $80,000 plus the face value of the $100,000 bond, for a total of $180,000.
