Facts
Life of zero coupon bond: 15 years.
Value at maturity: $50,000.
Bondholder pays $6,996 for the bond.
Annual interest rate is 13.5506% compounded semi-annually.
From the table below, interest for the first year would be $980.11 ($474.00 plus $506.11).
Col 1 Six-month periods | Col 2 Book value beginning of period | Col. 3 Effective interest* | Col. 4 Book value end of period (columns 2 + 3) |
1 | $6,996.00 | $474.00 | $7,470.00 |
2 | 7,470.00 | 506.11 | 7,976.11 |
3 | 7,976.11 | 540.40 | 8,516.51 |
4 | 8,516.51 | 577.02 | 9,093.53 |
29 | 43,855.94 | 2,971.37 | 46,827.31 |
30 | 46,827.31 | 3,172.69 | 50,000.00 |
*Computed by multiplying the book value at the beginning of each period (Column 2) by 6.7753% (the annual interest rate of 13.5506% 2 = 6.7753%).
42 C.F.R. §413.153