Independent solution

How to solve this Bond Book-Value Interest question

Setup

Setup

Measure the bond immediately after the sixth coupon. Four coupons and the redemption payment remain, and the yield per coupon period is 6%.

B6=10000v4+800a4‾∣ 0.06B_6=10000v^4+800a_{\overline4|\,0.06}

Model

Model

The prospective book value is the present value of those four coupons plus redemption. Interest earned during the next book-value period is the yield rate multiplied by that opening book value.

B6=10693.0B_6=10693.0

Compute

Compute

The prospective value is 10,693.0. Multiplication by 0.06 gives 641.58 of book-value interest, which rounds to 642.

I7=0.06B6=641.58I_7=0.06B_6=641.58

Answer

Answer

The calculation gives 642 for bond book-value interest, matching published choice B.

I7=642(B)\boxed{I_7=642\quad\text{(B)}}

Calculator reproduction

BA II Plus keystrokes

Check END/BGN, period, sign, TVM, and cash-flow setup

  1. 2nd CLR TVM; 4 N; 6 I/Y; 800 PMT; 10000 FV; CPT PV−10693.02The sign is negative because the entered coupons and redemption are receipts.
  2. 10693.02 × 0.06 =641.58Apply the half-year yield to the opening book value.