Question

You invest $5,000 in a 10-year bond quoted at 96 with interest paying 6%. What is the annual interest?

a
$130

b
$288

c
$300

d
$325

Answer 1

C $300

Explanation:

To calculate the annual interest, we need to determine the coupon payment, which is the interest paid annually on the bond.

The bond is quoted at 96, which means it is priced at 96% of its face value. Since you invested $5,000, the face value of the bond would be $5,000.

The coupon rate is given as 6%, which means the bond pays 6% of its face value as interest annually.

Therefore, the annual interest can be calculated as follows:

Annual interest = Face value of the bond × Coupon rate

= $5,000 × 6%

= $5,000 × 0.06

= $300

Thus, the annual interest on the bond is $300.

Therefore, the correct option is (c) $300.