Question

Peter buys ten zero-coupon bonds with a maturity of 30 years for a total of $4,119.87....

Peter buys ten zero-coupon bonds with a maturity of 30 years for a total of $4,119.87. Assume he buys the bonds on June 30th. How much interest will he have to report for tax purposes for the first year? Assume annual compounding for simplicity.

a. $0 because it is a zero-coupon bond.

b. $61.80.

c. $123.60.

d. $300.00.
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Answer #1

Correct answer: b. $61.80

Price of ten zero-coupon bonds = $4,119.87

Price of one zero-coupon bond = $411.99

Face value of a zero-coupon bond (maturity value) = $1,000

Years to maturity = 30

Yield rate (r) of above zero-coupon rate:

Above zero-coupon bonds purchased on June 30th thus only 6-month imputed interest income for first year to be reported for tax purposes.

6-month imputed interest income for first year

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