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Nov 19'23
Exercise
A 10,000 par value 10-year bond with 8% annual coupons is bought at a premium to yield an annual effective rate of 6%.
Calculate the interest portion of the 7th coupon.
- 632
- 642
- 651
- 660
- 667
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.
Nov 19'23
Solution: B
The book value at time 6 is the present value of future payments
[[math]]
BV_{6}=10000v^4 + 800 a_{\overline{4}|0.06}=7920.94+2772.08=10,693.
[[/math]]
The interest portion is 10,693(0.06) = 641.58.
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.