A newly issued 10-year maturity, 4% coupon bond making annual coupon payments is

Question

A newly issued 10-year maturity, 4% coupon bond making annual coupon payments is sold to the public at a price of $890. The bond will not be sold at the end of the year. The bond is treated as an original-issue discount bond.

Calculate the constant yield price. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

What will be an investor's taxable income from the bond over the coming year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

A newly issued 10-year maturity, 4% coupon bond making annual coupon payments is sold to the public at a price of $890. The bond will not be sold at the end of the year. The bond is treated as an original-issue discount bond.

Explanation / Answer

Investor taxable income:

= $898.32+$40-$890

= $48.32

Face value (FV) $                                        1,000 Coupon rate 4.00% Number of compounding periods per year                                                    1 Interest per period (PMT) $                                        40.00 Bond price (PV) $                                   (890.00) Number of years to maturity 10 Number of compounding periods till maturity (NPER)                                                  10 Bond Yield to maturity RATE(NPER,PMT,PV,FV) Bond Yield to maturity 5.46%

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