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15 January, 10:12

Pinto Corp. sells $300,000 of bonds to private investors. The bonds have a 4% coupon rate and interest is paid semiannually. The bonds were sold to yield 5%. What periodic interest payment does Pinto make to its investors? A. $6,000 B. $5,000 C. $2,500 D. $3,000 E. None of the above

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  1. 15 January, 13:03
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    The periodic interest payment is $6000. So, option A is the correct answer.

    Explanation:

    The coupon rate that is quoted on the bonds is always the rate for the whole year. Thus, a 4% coupon rate means a rate of interest of 4% for the whole year. The bonds are semi annual bonds which means the interest of 4% for the whole year is paid in two stages, after every 6 months.

    The semiannual rate of interest is thus = 4% / 2 = 2%

    The coupon is paid on the face value of the bond. The interest payment every six month or the periodic interest payment is,

    Interest payment-periodic = 300000 * 0.02 = 6000
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Home » Business » Pinto Corp. sells $300,000 of bonds to private investors. The bonds have a 4% coupon rate and interest is paid semiannually. The bonds were sold to yield 5%. What periodic interest payment does Pinto make to its investors? A. $6,000 B. $5,000 C.
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