If an 8% $200,000 bond with a date of March 1, 2010 is sold on March 31, 2010, the buyer of the bond will pay the seller how much in interest on the selling date?
Explanation
Answer - B - If an 8% $200,000 bond is sold one month after its date, the buyer of the bond will pay the seller one month in interest. In this case $200,000 x .08 / 12 = $1,333.
Key Takeaway: A bond’s interest payments typically occur semiannually. This means that the corporation will pay to the bondholders one-half of the annual interest at the end of each six-month period while the bond is outstanding. The formula for calculating the semiannual interest payments is:
Face Amount of the Bond x Stated Annual Interest Rate x 6/12 of a Year
To calculate monthly or quarterly interest, simply replace the 6/12 with the appropriate number.
