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A U.S. Government T-bond matures in 24 years and has a face value of $100. The bond has a coupon rate of 4% paid semi-annually (the next coupon is due in 6 months). The yield on the bond is 5%. If coupons are re-invested at 2.8332% per annum, then how much interest is earned on re-invested coupons over the life of the bond? Calculate the interest as a percentage of the total cash flows received at maturity by the bondholder. Option: A. 16%, B. 17%, C. 18% & D. 19%

A U.S. Government T-bond matures in 24 years and has a face value of $100. The bond has a coupon rate of 4% paid semi-annually (the next coupon is due in 6 months). The yield on the bond is 5%. If coupons are re-invested at 2.8332% per annum, then how much interest is earned on re-invested coupons over the life of the bond? Calculate the interest as a percentage of the total cash flows received at maturity by the bondholder. Option: A. 16%, B. 17%, C. 18% & D. 19%

Intermediate Financial Management (MindTap Course List)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter4: Bond Valuation
Section: Chapter Questions
Problem 1P
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A U.S. Government T-bond matures in 24 years and has a face value of $100. The bond has a coupon rate of 4% paid semi-annually (the next coupon is due in 6 months). The yield on the bond is 5%. If coupons are re-invested at 2.8332% per annum, then how much interest is earned on re-invested coupons over the life of the bond? Calculate the interest as a percentage of the total cash flows received at maturity by the bondholder.

Option: A. 16%, B. 17%, C. 18% & D. 19% 

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