Final answer:
The coupon rate is 6%, the maturity is 10 years, the par value is $5,000, and the bond receives $300 in interest per year at a simple interest rate of 6%.
Step-by-step explanation:
Your Grandma bought a 10-year Treasury bond for $5,000 with 6% interest. Here's the breakdown:
- a. The Coupon Rate is the interest rate paid by the bond issuer on the bond's face value. In this case, the coupon rate is 6%.
- b. Maturity refers to the date on which the bond will expire, and the bond issuer will pay the bondholder the face (par) value of the bond. Since it's a 10-year bond, and assuming it was just bought, it has a maturity of 10 years.
- c. The Par value, also known as the face value, is the amount of money the bond issuer agrees to pay back the bondholder on the maturity date. Typically, U.S. Treasury bonds have a par value of $1,000, but since this bond was bought for $5,000, that is considered the par value in this scenario.
- d. The interest in dollars received per year is calculated by multiplying the par value by the coupon rate. Therefore, the bond receives $5,000 * 6% = $300 per year using simple interest.