Question

At the beginning of her current tax year, Angela purchased a zero-coupon corporate bond at original issue for $51,500 with a yield to maturity of 6 percent. Given that she will not actually receive any interest payments until the bond matures in 8 years, how much interest income will she report this year assuming semiannual compounding of interest

Answer 1

Angela's income interest is $772,500‬

Step-by-step explanation:

Income interest at 1st Semiannual duration

Semi annual interest = $51,500*6%*(6/12)= $154,500

Income interest at 2nd Semiannual duration

Note New Principal for 2nd year will be =$51,500+$154,500= $206,000

Semi annual interest = ($51,500+$154,500)*6%*(6/12)= $618,000‬

There fore Total income = $154,500+$618,000‬= $772,500‬