But the solution is 157.44? And where is 40 come from? O/100 Points 100% KQuesti
ID: 2805936 • Letter: B
Question
But the solution is 157.44?And where is 40 come from? O/100 Points 100% KQuestion 6 (of 10) Award: 10 out of 10.00 points Show correct answer You buy a zero coupon bond at the beginning of the year that has a face value of $1,000, a YTM of 9 percent, and 21 years to maturity. You hold the bond for the entire year. Assume semiannual compounding. How much interest income will you have to declare on your tax return? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Interest income $14.49 eBook & Resources
Explanation / Answer
Zero coupon bonds are semi-annual bonds. So while computing bond price, N should be taken as twice of number of years.
At the beginning of year N = 42 (21*2)
At the ending of year N = 40 (20*2)
Difference between year ending and year begininng price is interest income.
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