Consider a 30 year coupon bond with $75 annual coupons.The next coupon is due one year from today.Assume that the yield curve is flat and so all yields are 8%,and yields are expected to remain constant over the bond's life.At maturity,how much interest will a bond investor have earned on the re-invested coupons?

Question

Quizplus · Accepted Answer

Step 1 - Calculate the future value of the coupon payments.
FV = C × 11ea7fdb_fbff_2842_a768_57663208153e_TB2902_11 FV = 75 × 11ea7fdb_fbff_2843_a768_e5cd39e673df_TB2902_11 = $8,496.24
Using a financial calculator:
N = 30, I/Y = 8 PV = 0, PMT = -75, cpt FV = $8,496.24
Step 2 - Calculate how much interest is earned on the coupons.
8,496.24 - (30 × 75) = $6,246.24

Consider a 30 Year Coupon Bond with $75 Annual Coupons