Asked by Paola Reyes on Jul 04, 2024
Verified
A bond with a maturity value of $700,000 was initially issued for $715,000.The bond has a ten-year life and a stated interest rate of 10%.The total interest expense over the life of the bond is
A) $700,000.
B) $715,000.
C) $685,000.
D) not determinable without knowing the bond's effective yielD.
Maturity Value
The amount payable to the holder of a financial instrument at its maturity date, including the principal and any remaining interest.
Stated Interest Rate
The annual interest rate declared on a loan or financial instrument, not including any fees or compounding of interest.
Effective Yield
The total yield of a bond, taking into account annual interest payments and the bond’s price fluctuation.
- Examine how variations in market interest rates impact bond valuations and the cost of borrowing.
Verified Answer
TS
textbooks schoolJul 09, 2024
Final Answer :
C
Explanation :
Cash interest payments of $700,000 ($700,000 × 10% × 10 years)minus $15,000 (the bond premium).
Learning Objectives
- Examine how variations in market interest rates impact bond valuations and the cost of borrowing.