Semiannual Payment Bonds with the Same Risk (Aaa)and Maturity (20

question 88

Multiple Choice

Semiannual payment bonds with the same risk (Aaa) and maturity (20 years) as your company's bonds have a simple (not effective annual rate) yield of 9 percent.Your company's treasurer is thinking of issuing at par some $1,000 par value,20-year,quarterly payment bonds.She has asked you to determine what quarterly interest payment,in dollars,the company would have to set in order to provide the same effective annual rate (EAR) as those on the 20-year,semiannual payment bonds.What would the quarterly interest payment be,in dollars?

• A) $45.00
• B) $25.00
• C) $22.25
• D) $27.50
• E) $23.00

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Definitions:

Predetermined Overhead Rate

This rate is calculated before the period begins and is used to apply manufacturing overhead costs to products based on a consistent formula.

Fixed Manufacturing Overhead

Costs in manufacturing that do not vary with the level of production, including factory rent, salaries of permanent staff, and equipment depreciation.

Machine-Hours

A measure of the amount of time machines are operated in the manufacturing process, used as a basis for allocating costs.

Predetermined Overhead Rate

A rate calculated before a period begins, used to allocate manufacturing overhead costs to products based on a selected activity base such as labor hours or machine hours.