SOLUTION: A major shipping company is planning to purchase new cargo ships. It wants to borrow $1100 million by issuing bonds. The bonds are for a 15-year period with at a rate of 9 percent

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Question 1164760: A major shipping company is planning to purchase new cargo ships. It wants to borrow $1100 million by issuing bonds. The bonds are for a 15-year period with at a rate of 9 percent per year compounded quarterly. Interest is to be paid each quarter to bondholders. How much will the company have to pay in quarterly interest? How much interest will it pay over the 12-year period?
Answer by solver91311(24713) About Me  (Show Source):
You can put this solution on YOUR website!


You have your terminology wrong. You cannot compound interest unless the interest paid by the borrower is allowed to remain in the account so that interest accrues against the interest paid. So if the interest goes to the bondholders each quarter, then the interest paid is simple interest, not compound interest. So 0.09 per year is 0.025 per quarter. So 1100 X 10^6 times 0.025 gets paid each quarter, and 4 times 15 is 60, so 60 times the quarterly amount is the total over the 15 years.


John

My calculator said it, I believe it, that settles it