At the beginning of the year,you purchased a 5-year zero coupon bond with a yield to maturity of 6.80% and a face value of $1,000.Your tax rate is 30%.What is the total tax that you will have to pay on the bond during the first year? Do not round your intermediate calculations.

Question

Quizplus · Accepted Answer

The bond's annual interest income is calculated using the yield to maturity. The interest income for the first year is $1,000 / (1 + 0.068)^5 - $1,000 / (1 + 0.068)^4. The tax is 30% of this interest income.

At the Beginning of the Year,you Purchased a 5-Year Zero