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  3. 4. (4pts) a $10,000 par value 10-year bond with 8%

4. (4pts) A $10,000 par value 10-year bond with 8% annual coupons is bought at a...

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Finance

4. (4pts) A $10,000 par value 10-year bond with 8% annualcoupons is bought at a premium to yield an annual effective rate of6%. Calculate the interest earned and the amount of premiumamortized in the 7th coupon payment. Also find the total interestearned in the 10 years. (Answers: $641.58, $158.42, $6527.98)

Answer & Explanation Solved by verified expert
3.6 Ratings (550 Votes)

n = 10
I = 6%
Cashflows Amount PVF Present Value
Annual Interest 800 7.36009 5888.072
Principal 10000 0.558395 5583.95
Price f Bonds 11472.02
Amort Chart:
Period Cash Int Int Exp Premium Unamortized Carrying
Amortized Premium Value
0 1472.02 11472.02
1 800.00 688.32 111.68 1360.34 11360.34
2 800.00 681.62 118.38 1241.96 11241.96
3 800.00 674.52 125.48 1116.48 11116.48
4 800.00 666.99 133.01 983.47 10983.47
5 800.00 659.01 140.99 842.47 10842.47
6 800.00 650.55 149.45 693.02 10693.02
7 800.00 641.58 158.42 534.60 10534.60
8 800.00 632.08 167.92 366.68 10366.68
9 800.00 622.00 178.00 188.68 10188.68
10 800.00 611.32 188.68 0.00 10000.00
Total Interest earned in Year-7 641.58
Premium Amortized in Year-7 158.42
Bonds Carrying Value in Year-7 10534.6

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4. (4pts) A $10,000 par value 10-year bond with 8% annualcoupons is bought at a premium to yield an annual effective rate of6%. Calculate the interest earned and the amount of premiumamortized in the 7th coupon payment. Also find the total interestearned in the 10 years. (Answers: $641.58, $158.42, $6527.98)

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