Question

At the beginning of her current tax year, Angela purchased a zero-coupon corporate bond at original issue for $46,000 with a yield to maturity of 5 percent.Given that she will not actually receive any interest payments until the bond matures in 10 years, how much interest income will she report this year assuming semiannual compounding of interest?

Answer 1

Semiannual compounding of interest = $2,328.75

Step-by-step explanation:

Given:

Semi annual rate = 5/2 = 2.5 = 0.025

P = $46,000

Find:

Semiannual compounding of interest

Computation:

Semiannual compounding of interest = 46,000[1 - (1 + 0.025)²]=

Semiannual compounding of interest = $2,328.75