A 10-year bond pays 6% annual interest in semi-annual payments. The current market yield to maturity is 4%. The appropriate interest factors used to calculate the sales price of this bond should be in the TVM tables under 2% for 20 periods.

Question

Quizplus · Accepted Answer

Since the bond pays interest semi-annually, the annual market yield of 4% is divided by 2, resulting in a 2% yield per period. The bond has 10 years to maturity, with 2 periods per year, totaling 20 periods. Therefore, the interest factors should be under 2% for 20 periods.

A 10-Year Bond Pays 6% Annual Interest in Semi-Annual Payments