Adonis Corporation issued 10-year, 11% bonds with a par value of $270,000. Interest is paid semiannually. The market rate on the issue date was 10%. Adonis received $286,827 in cash proceeds. Which of the following statements is true?

a) Adonis must pay $286,827 at maturity and no interest payments.

b) Adonis must pay $270,000 at maturity and no interest payments.

c) Adonis must pay $270,000 at maturity plus 20 interest payments of $13,500 each.

d) Adonis must pay $286,827 at maturity plus 20 interest payments of $14,850 each.

e) Adonis must pay $270,000 at maturity plus 20 interest payments of $14,850 each.

Question

Business

Cecilia Berg

1 August, 00:42

Adonis Corporation issued 10-year, 11% bonds with a par value of $270,000. Interest is paid semiannually. The market rate on the issue date was 10%. Adonis received $286,827 in cash proceeds. Which of the following statements is true?

a) Adonis must pay $286,827 at maturity and no interest payments.

b) Adonis must pay $270,000 at maturity and no interest payments.

c) Adonis must pay $270,000 at maturity plus 20 interest payments of $13,500 each.

d) Adonis must pay $286,827 at maturity plus 20 interest payments of $14,850 each.

e) Adonis must pay $270,000 at maturity plus 20 interest payments of $14,850 each.

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Answers (1)

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Julia Hickman · Answer 1

e) Adonis must pay $270,000 at maturity plus 20 interest payments of $14,850 each.

Explanation:

Based on this information, Adonis Corporation is issuing a coupon paying bond.

The $286,827 that they receive is the market price / market value of the bond. The duration of the bond = 10 years, however, since the coupons are paid semiannually, there will be 10*2 = 20 payments in total. Semi annual coupon payment; PMT = (11%/2) * 270,000 = $14,850 The $270,000 is the face value of the bond which must be repaid at the end of the life of this bond. Therefore, Adonis must pay $270,000 at maturity plus 20 interest payments of $14,850 each.