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

question 62

Multiple Choice

Semiannual payment bonds with the same risk (Aaa) and maturity (20 years) as your company's bonds have a simple (not EAR) 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:

Earnings Before Interest And Taxes

A measure of a firm's profitability that excludes interest and income tax expenses.

Fixed Costs

Expenses that remain constant regardless of production or sales volume, including rent, salaries, and insurance costs.

Depreciation Expense

Depreciation expense represents the method used to allocate the cost of a tangible asset over its useful life, reflecting the decrease in value over time.

Annual Variable Costs

The costs that vary directly with the volume of production or sales within a specific year.