Question

Calculate the annual interest that you will receive on the described bond.

A ​$ 2000Treasury bond with a current yield of 4.0 ​% that is quoted at 105 points
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Part 1
The annual interest is ​$

enter your response here. ​(Round to the nearest cent as​ needed.)

Answer 1

Explanation:

To calculate the annual interest, we need to use the formula:

Annual Interest = (Face Value of Bond) x (Annual Coupon Rate)

where the face value of the bond is $2000 and the annual coupon rate is 4.0%.

However, we need to first convert the bond's quoted price of 105 points to its dollar value. Since one point is equal to 1% of the face value, 105 points is equal to 105% of the face value:

Dollar Value = (Quoted Price / 100) x Face Value

Dollar Value = (105 / 100) x $2000

Dollar Value = $2100

Now we can calculate the annual interest:

Annual Interest = $2000 x 4.0%

Annual Interest = $80

Therefore, the annual interest you will receive on the bond is $80.