What
is
the
cash
flow
of
a
8-year
bond
that
pays
coupon
interest
semiannually,
has
a
coupon
rate
of
6%,
and
has
a
par
value
of
$100,000? ?

To calculate the cash flow of the bond, you need to understand the components involved in the bond's cash flows. Here’s the breakdown of the problem:

1. Break Down the Problem

1. Determine the coupon payment amount.
2. Calculate the total cash flow from the bond over its entire term.

2. Relevant Concepts

• The coupon payment can be calculated using the formula: $\text{Coupon Payment} = \left( \text{Coupon Rate} \times \text{Par Value} \right) / \text{Number of Payments per Year}$
• The bond pays interest semiannually, which means there are 2 payments each year.

3. Analysis and Detail

1. Calculate the Coupon Payment: $\text{Coupon Payment} = \frac{0.06 \times 100,000}{2} = \frac{6,000}{2} = 3,000 \text{ dollars}$

2. Total Cash Flow over 8 Years:

   • The total number of payments over 8 years (since it's semiannual): $\text{Total Payments} = 8 \times 2 = 16$
   • Total cash flow from coupon payments: $\text{Total Cash Flow} = \text{Coupon Payment} \times \text{Total Payments} = 3,000 \times 16 = 48,000 \text{ dollars}$

4. Verify and Summarize

The calculations show that the bond pays $3,000 every six months for 8 years, leading to a total cash flow of$48,000 from coupon payments alone.

Final Answer

The total cash flow of the 8-year bond is $48,000.