A newly issued 20-year maturity, zero-coupon bond making annual coupon payments is issued with a yield to maturity of 8% and face value $1,000. Find the imputed interest income in the first, second, and last year of the bond's life.

Question

Andres Pineda

Business

21 May, 11:15

A newly issued 20-year maturity, zero-coupon bond making annual coupon payments is issued with a yield to maturity of 8% and face value $1,000. Find the imputed interest income in the first, second, and last year of the bond's life.

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Answers (1)

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Kelly Bartlett · Answer 1

1st Year = $80

2nd Year = $166.40

3rd Year = $345.26

Explanation:

Imputed Interest income in this case can be referred to where the investor does not receive any fixed annual interest payments but the bond itself has been purchased at a discount to the face value.