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?

1. Break Down the Problem

To determine the cash flow of the bond, we need to identify the following:

• The total duration of the bond (in years).
• The frequency of coupon payments (semiannually).
• The coupon rate and the par value of the bond.

2. Relevant Concepts

• Coupon Payment Formula: The coupon payment can be calculated using: $\text{Coupon Payment} = \left( \text{Coupon Rate} \times \text{Par Value} \right) / \text{Number of Payments Per Year}$
• Total Number of Payments: The total number of payments over the bond's life can be calculated as: $\text{Total Payments} = \text{Years} \times \text{Payments Per Year}$

3. Analysis and Detail

1. The coupon rate is 6%, and the par value is $100,000.
2. Since the bond pays interest semiannually, the number of payments per year is 2.
3. The total duration of the bond is 8 years.

Calculating the coupon payment:

• Total payments per year = $2$
• Total payments over 8 years = $8 \times 2 = 16$

Using the coupon payment formula: $\text{Coupon Payment} = \left( 0.06 \times 100,000 \right) / 2 = 3,000$

4. Verify and Summarize

The bond pays a coupon of $3,000 every six months, resulting in a total cash flow over the life of the bond.

Final Answer

The cash flow from the bond is $3,000 semiannually for 8 years, totaling 16 payments, amounting to a total cash flow of$48,000.