# On January 1 a company issues a $75,000 bond that pays interest semi-annually. The first interest payment of$1,875 is paid on July 1. What is the stated annual interest rate on the bond? A. 5.00% B. 2.50% C. 1.25% D. 10.00%

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### Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685

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FindFindarrow_forward

### Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
Chapter 13, Problem 7MC
Textbook Problem
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## On January 1 a company issues a $75,000 bond that pays interest semi-annually. The first interest payment of$1,875 is paid on July 1. What is the stated annual interest rate on the bond?A. 5.00%B. 2.50%C. 1.25%D. 10.00%

To determine

Concept introduction:

Bonds:

are defined as debt instruments which are usually issued by the company that borrows to its lenders. They are issued at a rate of interest that is specified and for a specified period of time. The bondholders receive a fixed rate of interest on the bonds and the repayment of the bonds is made at the maturity date.

Simple interest:

Simple interest is the amount of interest paid on the principal amount using a fixed interest rate. The formula to calculate the Simple interest is as follows:

Simple Interest = Principal amount × Interest rate × Period

To choose:

The stated annual interest rate on bonds.

### Explanation of Solution

The stated annual interest rate on bonds is calculated as follows:

The Semi Annual interest payment on bonds = Face value of the bonds × Interest rate /2

Hence,

1875 = 75000×Interest rate /2

In...

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