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Difficulty: MediumIssue and Redemption of Debentures

BlueWave Ltd issued 2,5002,500, 12%12\% debentures of ₦200\text{₦}200 each at par on 1st July 2024. Interest is payable semi-annually on 31st December and 30th June. What is the amount of debenture interest payable for the period ending 31st December 2024, in Naira (₦\text{₦})?

Answer: 30000 ₦

Answer

The debenture interest payable for the period ending 31st December 2024 is ₦30,000.
The correct answer is obtained by calculating the total nominal value (2,500×₦200=₦500,0002,500 \times \text{₦}200 = \text{₦}500,000), finding the annual interest (12%×₦500,000=₦60,00012\% \times \text{₦}500,000 = \text{₦}60,000), and then apportioning it for 6 months (July to December), which equals ₦30,000.

Step-by-Step Solution

1
Determine total nominal value of debentures
₦500,000
Multiply the total number of debentures issued by the nominal value per debenture (2,500×₦2002,500 \times \text{₦}200).
2
Calculate annual debenture interest
₦60,000
Apply the stated annual coupon rate of 12% to the total nominal value of ₦500,000.
3
Time-apportion interest for the 6-month period
₦30,000
Multiply the annual interest amount by 612\frac{6}{12} to account for the duration from 1st July to 31st December 2024.

Key Concept

Debenture Interest Time Apportionment
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Topics

Issue and Redemption of Debentures

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