A bond,paying semi-annual coupons of $60 is purchased to yield j₂ = 13%.The absolute value of the write up (book value adjustment)in the 6^th coupon period is $5.81.What is the interest on the book value for the 11^th coupon,I₁₁?

Question

Quizplus · Accepted Answer

The write-up in the 6th coupon period is $5.81, which means the book value of the bond increased by $5.81. Therefore, the book value after the 5th coupon period is $5.81 less than the face value of the bond.
Face value of the bond = $1000
Book value after the 5th coupon period = $1000 - $5.81 = $994.19

We can use this book value to calculate the interest on the book value for the 11th coupon period:
Semi-annual interest rate = 13%/2 = 6.5%
Semi-annual interest on the book value = 6.5% x $994.19 = $64.65
Total interest on the book value for the 11th coupon period = $64.65 x 2 = $129.30
But we have to adjust for the write-up in the 6th coupon period:
Interest on the book value for the 11th coupon period = $129.30 - $5.81 = $123.49
Therefore, the interest on the book value for the 11th coupon period is $67.96.

A Bond,paying Semi-Annual Coupons of $60 Is Purchased to Yield