Promises, Incorporated has issued a 10-year, semiannual, level-coupon bond that has a coupon rate of 18%. The bond is priced to offer an effective annual rate (i.e., true yield)of 14%
And sells for $1,212 per $1,000 of principal value. How much interest will this bond pay every
Six months (per $1,000 of principal value)?

Question

Quizplus · Accepted Answer

The bond pays a semiannual interest, which is half of the annual interest rate. The annual interest rate is 18%, so semiannually, it pays 18%/2 = 9% of the principal value. For a $1,000 principal value, the semiannual interest payment is 9% of $1,000 = $90.00.

Promises, Incorporated Has Issued a 10-Year, Semiannual, Level-Coupon Bond That