Question

Sonia bought a bond with a face value of $4000 and a coupon rate of 7.75%. The bond will mature in 20 years. How much interest will she receive semiannually?

a) $77.50
b) $155.00
c) $185.50
d) $310.00

Answer 1

To calculate the interest Sonia will receive semiannually, divide the face value of the bond by the number of coupon payments per year and multiply it by the coupon rate.

Step-by-step explanation:

Sonia bought a bond with a face value of $4000 and a coupon rate of 7.75%. To calculate the amount of interest she will receive semiannually, use the following steps:

First, determine the annual interest amount by multiplying the face value by the coupon rate: $4000 × 7.75% = $310.

Since the interest is paid out semiannually, divide the annual interest amount by 2 to find the semiannual payment: $310 / 2 = $155.00.

Therefore, the correct answer is (b) $155.00.

To calculate the interest Sonia will receive semiannually, we need to use the formula:

Interest = (Face Value) × (Coupon Rate) ÷ (Number of Coupon Payments per Year)

In this case, the face value of the bond is $4000, the coupon rate is 7.75%, and there are 2 coupon payments per year (semiannually).

Therefore, the interest Sonia will receive semiannually is:

Interest = ($4000) × (0.0775) ÷ (2) = $155.00

So the correct answer is b) $155.00.