Exhibit 13.8 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM The following information is given concerning a pure yield pick-up swap: You currently hold a 20-year, Aa 2 percent coupon bond priced to yield 9.5 percent. As a swap candidate, you are considering a 20-year, Aa 14 percent coupon bond priced to yield 10.00. Assume a reinvestment rate of 11 percent, semiannual compounding, and a one-year workout period. Current Bond Candidate Bond Dollar Investment $1,222.04 $1,343.18 Coupon 110.00 140.00 i on One Coupon 3.3 ? Principal Value at Year End 1,218.04 ? Total Accrued 1,341.34 ? Realized Compound Yield 9.5351% ? Refer to Exhibit 13.8. The interest on one coupon for the candidate bond is a. $70.00. b. $5.38. c. $8.35. d. $3.85. e. $3.58.