Chapter C, Problem 1MCQ

To determine

Bonds:

Bonds are financial instrument, generally issued to raise a large amount of debt with an assurance to repay the sum with applicable interest.

To identify: The correct option

Explanation of Solution

Option d, $625 is correct.

Given,

Value of bond is $30,000.

Interest rate is 5%.

Interest paid on February 1 and on August 1.

Calculate amount of interest accrued on December 31.

Formula to calculate the interest is,

  $\text{Interest}=\text{Value of bond}\times \text{Interest rate}\times \text{Number of months}$

Substitute $30,000 for value of bond, 5% for interest rate and 5 months (from August to December) in the above equation.

  $\begin{array}{c}\text{Interest}=\$30,000\times \frac{5}{100}\times \frac{5}{12}\\ =\$625\end{array}$

Thus, the amount of interest revenue accrued at December 31 is $625.