Question 1
Multiple ChoiceJordan Lee purchases a mortgage-backed bond with a par value of $1,000 and a coupon rate of 6%. The bond pays interest monthly. The purchase price was $980. The monthly interest payment is closest to:
Explanation
The monthly interest payment is based on the coupon rate and the par value of the bond, not the purchase price. The annual coupon payment is 6% × $1,000 = $60. Since interest is paid monthly, the monthly payment is $60 ÷ 12 = $5.00.