SIE Exam Question 807: Answer and Explanation

Question: 807

Lauren purchased a bond with a face value of $1,000 and a coupon rate of 4.5%. Her effective tax rate is 25%. If the risk-free rate is 4%, and coupon payments are made semiannually, what is the periodic interest payment?

• A. $16.88, paid twice per year.
• B. $22.50, paid twice per year.
• C. $45.00, paid once per year.
• D. $45.00, paid twice per year.

Correct Answer: B

Explanation:

Periodic interest payment = ($1,000 × 0.045) ÷ 2 = $22.50