Question

Determine the interest payment for the following three bonds: 5.5 percent coupon corporate bond (paid semi-annually), 6.45 percent coupon Treasury note, and a corporate zero coupon bond maturing in 10 years. (Assume a $1,000 par value.)

Answer 1

Answer:

Interest payment = Interest rate per period × par value

5.5 percent coupon corporate bond (paid semi-annually)

Interest payment = 1/2 × 0.055 × 1000 = $27.5

6.45 percent coupon Treasury note (Treasury makes semi-annual coupons)

Interest payment = 1/2 × 0.0645 × 1000 = $32.25

Zero coupon bond:

Interest = 0 × 1000 = $0

Answer 2

Based on the information given the interest payment  are: $110, $65, $0.

a. Interest payment for 5.5%

Interest payment=(Semi annual percentage×2)× Face value

Interest payment=(5.5%×2)×1,000

Interest payment=$110

b. Interest payment for 6.45%

Interest payment=Annual percentage × Face value

Interest payment=6.45%×1,000

Interest payment=$64.5

Interest payment=$65 (Approximately)

c. The Interest payment for zero coupon bond maturing in 10 years will be zero reason being that bonds are issued at discount and they mature at face value.

Inconclusion the interest payment  are: $110, $65, $0.

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