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19-02-2020
Business

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A newly issued 10-year maturity, 9% coupon bond making annual coupon payments is sold to the public at a price of $980. What will be an investor’s taxable income from the bond over the coming year? The bond will not be sold at the end of the year. The bond is treated as an original issue discount bond. (Round your answer to 2 decimal places.)

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19-02-2020

Answer:

$88.2

Explanation:

980 x 9% = 88.2

In case of coupon bonds, there is periodic payment of interest. No imputed interest in involved. Investor simply pays tax on the amount received as interest income. As this coupon bond was as original issue and there is no involvement of secondary marketplace, so there would not be any imputed interest complications.

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