KQuestion 6 (of 10) value: 10.00 points You buy a zero coupon bond at the beginn

Question

KQuestion 6 (of 10) value: 10.00 points You buy a zero coupon bond at the beginning of the year that has a face value of $1,000, a YTM of 9 percent, and 21 years to maturity You hold the bond for the entire year Assume semiannual compounding How much interest income will you have to declare on your tax return? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Interest income References eBook & Resources Worksheet Difficulty: 1 Basic Check my work

Explanation / Answer

Interest rate for 6months= 9%/2= 4.5%

Face value= 1000

Year to maturity= 21

Number of compounding periods= 21*2= 42

Discount factor 42periods and4.5%= .0.15744

Present value of bond= 1000* 0.15744= 157.44

Discount on bonds issued= 1000-157.44= 842.56

Interest per year= 842.56/21= 40.12 is the amount of interest reported every year

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