Hopter Khan (HK) owns vast amounts of corporate bonds. Suppose HK buys $1,100,000 of Tyconix bonds at a price of 104. The Tyconix bonds pay cash interest at the annual rate of 6% and mature at the end of five years.
1. How much did HK pay to purchase the bond investment? How much will HK collect when the bond investment matures?
2. How much cash interest will HK receive each year from Tyconix?
3. Will HKs annual interest revenue on the bond investment be more or less than the amount of cash interest received each year? Give your reason.
4. Compute HKs annual interest revenue on this bond investment. Use the straight-line method to amortize the investment.