If an investor has 5 government bonds with a 6% coupon and a $1,000 par value, what is the annual interest?

If an investor has 5 government bonds with a 6% coupon and a $1,000 par value, what is the annual interest?

• A. $30
• B. $60
• C. $90
• D. $120

Answer: (B)

To determine the annual interest from the government bonds, we can apply the formula for calculating the annual interest based on the coupon rate. The coupon rate of a bond indicates the annual interest payment as a percentage of the bond's par value. In this scenario, each bond has a 6% coupon rate and a par value of $1,000. Therefore, the annual interest payment for one bond is calculated as follows: Annual Interest per Bond = Par Value × Coupon Rate Annual Interest per Bond = $1,000 × 0.06 = $60 Since the investor owns 5 government bonds, the total annual interest earned from all the bonds combined would be: Total Annual Interest = Annual Interest per Bond × Number of Bonds Total Annual Interest = $60 × 5 = $300 While the total annual interest from all five bonds is $300, the question specifically asks for the annual interest per individual bond, which is $60. Thus, the correct response best reflects the annual payment for one bond based on the provided coupon rate.

To determine the annual interest from the government bonds, we can apply the formula for calculating the annual interest based on the coupon rate. The coupon rate of a bond indicates the annual interest payment as a percentage of the bond's par value.

In this scenario, each bond has a 6% coupon rate and a par value of $1,000. Therefore, the annual interest payment for one bond is calculated as follows:

Annual Interest per Bond = Par Value × Coupon Rate

Annual Interest per Bond = $1,000 × 0.06 = $60

Since the investor owns 5 government bonds, the total annual interest earned from all the bonds combined would be:

Total Annual Interest = Annual Interest per Bond × Number of Bonds

Total Annual Interest = $60 × 5 = $300

While the total annual interest from all five bonds is $300, the question specifically asks for the annual interest per individual bond, which is $60. Thus, the correct response best reflects the annual payment for one bond based on the provided coupon rate.