Exercises 23-28 are based on the following table, which...

Exercises 23-28 are based on the following table, which lists several corporate bonds issued during the second quarter of $2015:^{2}$ $$\begin{array}{|r|c|c|c|c|c|c|}\hline \text { Company } & \text { AT\&T } & \begin{array}{c}\text { Bankof} \\\text { America }\end{array} & \begin{array}{c}\text { General } \\\text { Electric }\end{array} &\begin{array}{c}\text { Goldman } \\\text { Sachs }\end{array} & \text { Verizon } & \begin{array}{c}\text { Wells } \\\text { Fargo }\end{array} \\\hline \begin{array}{r}\text { Time to } \\\text { Maturity } \\\text { (years) }\end{array} & 10 & 10 & 2 & 3 & 8 & 7 \\\hline \begin{array}{r}\text { Annual } \\\text {Rate }(\%)\end{array} & 3.40 & 4.00 & 5.25 & 6.15 & 5.15 & 3.50 \\\hline\end{array}$$ If you spent $\$ 10,000$ on AT\&T bonds, how much interest would you earn every 6 months, and how much interest would you earn over the life of the bonds? [HINT: See Example $3 .]$

Exercises 23-28 are based on the following table, which lists several corporate bonds issued during the second quarter of $2015:^{2}$
$$\begin{array}{|r|c|c|c|c|c|c|}\hline \text { Company } & \text { AT\&T } & \begin{array}{c}\text { Bankof} \\\text { America }\end{array} & \begin{array}{c}\text { General } \\\text { Electric }\end{array} &\begin{array}{c}\text { Goldman } \\\text { Sachs }\end{array} & \text { Verizon } & \begin{array}{c}\text { Wells } \\\text { Fargo }\end{array} \\\hline \begin{array}{r}\text { Time to } \\\text { Maturity } \\\text { (years) }\end{array} & 10 & 10 & 2 & 3 & 8 & 7 \\\hline \begin{array}{r}\text { Annual } \\\text {Rate }(\%)\end{array} & 3.40 & 4.00 & 5.25 & 6.15 & 5.15 & 3.50 \\\hline\end{array}$$
If you spent $\$ 10,000$ on AT\&T bonds, how much interest would you earn every 6 months, and how much interest would you earn over the life of the bonds? [HINT: See Example $3 .]$

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Key Concepts

Bond Maturity

Bond maturity refers to the length of time until the bond reaches its expiration date, when the principal amount is repaid to the bondholder. The time to maturity not only affects the total number of interest payments but also influences the bond's risk profile and interest rate risk.

Coupon Rate

The coupon rate is the annual interest percentage that a bond pays, based on its par value. It serves as the basis for determining how much interest the bondholder will receive each year, and is critical in pricing and yielding bonds.

Semiannual Interest Payment

Many bonds, especially corporate bonds, pay interest on a semiannual basis. This means that the annual coupon rate is divided into two equal parts, with payment made every six months. Understanding this concept is essential for calculating the individual interest payments and managing cash flows.

Total Interest Calculation

Calculating the total interest earned over the life of a bond involves summing all the individual interest payments made until the bond matures. This requires knowing the periodic interest payment (often derived from the semiannual coupon rate) and the total number of periods over the bond’s life.

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