For a 6 year bond, the investor will receive $40 of interest at the end of each 6 months. The interest can be reinvested at a 6 month rate of 4%. The total interest earned on coupons would be

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The correct answer is A because the total interest earned on coupons would be $121. This is calculated by multiplying the semi-annual interest payment of $40 by the number of semi-annual periods, which is 12 (6 years x 2 semi-annual periods per year). The result is $480. The interest earned on the reinvested coupons would be $121, which is calculated by multiplying the semi-annual interest payment of $40 by the number of semi-annual periods, which is 3 (6 years x 2 semi-annual periods per year). The result is $120. The total interest earned on coupons and reinvested coupons would be $601 ($480 + $121).

For a 6 Year Bond, the Investor Will Receive $40