Personal Finance 1st Edition by Jack R. Kapoor

Exercise 24

Determining Interest and Approximate Bond Value. Eight years ago, Burt Brownlee purchased a U.S. government bond that pays 3.80 percent interest. The face value of the bond was $1,000.

a. What is the dollar amount of annual interest that Burt received from his bond investment each year?

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b. Assume that comparable bonds are now paying 2.9 percent. What is the approximate dollar price for which Burt could sell his bond?

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c. In your own words, explain why Burt’s bond increased or decreased in value.

Step 1 of 3

a)

Compute the Dollar amount of interest:

The face value of the bond is $1,000, coupon rate is 3.80%

To find the dollar amount of interest, multiply the face value with the interest rate.

The annual dollar amount of interest received from the investment is $38.