Question
Creative Solutions Inc. has issued 10 - year \( \$ 1,000 \) face value, \( 8 \% \) annual coupon bonds, with a yield to maturity of \( 9.0 \% \). The annual interest payment for the bond is A. \( \$ 80 \) B. \( \$ 40 \) C. \( \$ 45 \) D. \( \$ 90 \)
Ask by Newton Mccarthy. in the United States
Jan 24,2025
Real Tutor Solution
Tutor-Verified Answer
Answer
The annual interest payment is \$80.
Solution
To determine the **annual interest payment** for the bond issued by Creative Solutions Inc., you can use the following formula:
\[
\text{Annual Interest Payment} = \text{Coupon Rate} \times \text{Face Value}
\]
Given:
- **Face Value (FV)** = \$1,000
- **Coupon Rate** = 8%
Plugging in the values:
\[
\text{Annual Interest Payment} = 8\% \times \$1,000 = 0.08 \times \$1,000 = \$80
\]
Therefore, the **annual interest payment** for the bond is:
**A. \$80**
Answer: **A. \$80**
Reviewed and approved by the UpStudy tutoring team
Like
error msg
Explain 
Simplify this solution Mind Expander
The annual interest payment for a bond is calculated by multiplying the face value by the coupon rate. In this case, the bond has a face value of \( \$ 1,000 \) and a coupon rate of \( 8\% \). So, the annual payment would be: \( \$ 1,000 \times 0.08 = \$ 80 \). This means the answer is A. \( \$ 80 \). The yield to maturity (YTM) of \( 9.0\% \) doesn't affect the annual coupon payment; it influences the bond's price in the market instead.
