Explanation:
To calculate the annual interest on the bond, we first need to determine its coupon rate, which is the fixed percentage of the bond's face value that it pays out as interest each year.
The bond's current yield of 4.4% tells us the yield-to-maturity (YTM) of the bond, which takes into account the bond's current market price and the timing and amount of its future cash flows. However, the bond's coupon rate may be different from its YTM, depending on whether it was issued when interest rates were higher or lower than they are now.
Since the bond is quoted at 106 points, this means it is trading at a premium above its face value of $2000. Specifically, 106 points represents 106% of the face value, or $21,200 ($2000 x 106%).
To calculate the bond's coupon rate, we can divide its annual interest payment by its face value. Since we don't know the exact interest payment, we can use the current yield as an estimate.
4.4% of the bond's market price of $21,200 gives us an estimated annual interest payment of $932.80 (4.4% x $21,200).
Therefore, the bond's annual interest is $932.80.