Answered: annual yield rate is 8% convertible…

annual yield rate is 8% convertible semiannually. Calculate the interest earned on this bond for the first half year. Round the answer to the nearest tenth dollar.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Concept explainers

Bond Valuation

Bond valuation are the notes issued by the corporation to raise long-term funds for the business. The corporations are required to pay the interest on such liabilities at a specified rate of interest (termed as coupon rate) at specified dates which may be on semi-annual or annual basis. These interest payments may be in the form of coupons.

Question

Suppose the redemption value of a 5-year bond is $105. It pays semiannual coupons of $3 each. The
annual yield rate is 8% convertible semiannually. Calculate the interest earned on this bond for the
first half year. Round the answer to the nearest tenth dollar.

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