High School

A $1500, 8.1% bond with semi-annual coupons redeemable at par in 10 years was purchased at 97.7. What is the average income per interest payment interval?

A. $62.48
B. $59.02
C. $61.61
D. $34.50

Answer :

The average income per interest payment interval is $60. 75, which is closest to answer c. $61.61.

To calculate the average income per interest payment interval, we need to determine the semi-annual coupon payment.

Given:

Face value of the bond (redeemable at par) = $1500

Coupon rate = 8.1%

Bond purchase price = 97.7% of face value

Coupon payment = Coupon rate * Face value / 2

Coupon payment = 8.1% * $1500 / 2

Coupon payment = $121.50

The bond pays semi-annual coupons, so there are two interest payment intervals per year.

Average income per interest payment interval = Coupon payment / Number of interest payment intervals per year

Average income per interest payment interval = $121.50 / 2

Average income per interest payment interval = $60.75.

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