Answer:
annual interest expense $ 14,000
interest expense per semiannual payment: $ 7,000
for a total of $ 14,000
Explanation:
The bonds were issued at face value. Thus, the interest expense will match the cash payment of the bond.
annual interest:
principal x rate x time
200,000 x 7% = 14,000
semiannual interest
principal x rate x time
200,000 x 7% x 1/2 (half-year) = 7,000
Note:
We must express rate and time under the same metric. As the 7% rate is annual we multiply by 1/2 (a half) as there are 2 payment per year.
