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.

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.