A $10,000 bond paying semi-annual coupons at j₂ = 8% is redeemable for $10,200 in 10 years.A sinking fund is set up at j₂ = 4% to provide the necessary funds at maturity.What is the semi-annual expense of the bond?

Question

Quizplus · Accepted Answer

The semi-annual coupon payment is $10,000 * 0.08 / 2 = $400. The sinking fund needs to accumulate $200 over 20 periods at j2 = 4%, which requires a semi-annual payment of $19.80. Therefore, the total semi-annual expense is $400 + $19.80 = $419.80.

A $10,000 Bond Paying Semi-Annual Coupons at J2 = 8

A $10,000 Bond Paying Semi-Annual Coupons at J₂ = 8