Milan Company issued bonds with a face value of $200,000 on January 1, 2018. The bonds had

Question:

Milan Company issued bonds with a face value of $200,000 on January 1, 2018. The bonds had a 7 percent stated rate of interest and a six-year term. The bonds were issued at face value. Interest is payable on an annual basis.

Required

a. What total amount of interest will Milan Company pay in 2018 if bond interest is paid annually each December 31?

b. What total amount of interest will Milan Company pay in 2018 if bond interest is paid semiannually each June 30 and December 31?

c. Write a memo explaining which option Milan would prefer.

Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...