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Bonds and Semiannual Interest

Raeo Corp. bonds trade at 100 today. The bonds pay semiannual interest that is paid on January 1 and July 1. The coupon on the bonds is 10 percent. How much will you pay for a Raeo bond if today is:

a) March 1
b) October 1
c) July 1
d) August 15

Solution Preview

a. Since the interest is paid on Jan 1, and today is March 1, you owe two months of interest. Interest rate per month = 10% / 12 = 0.8333%. 1.6667% (= 0.8333% x 2) is the interest for two months. The bonds ...

Solution Summary

This solution shows step-by-step calculations of interest rate for March, October, July and August to find out how much a person must pay for a Raeo bond.