Answer:
Annual Interest = $80
Interest rate = 8.89%
Explanation:
The investor pays discounted price for this bond.
We know, Annual Interest = Coupon payment/Market value
Given,
Coupon payment = Principal value*Coupon rate
Coupon payment = $1,000*8% = $80
Market value = Price pays for the bond = $900
Therefore, the annual interest rate = $80/$900
Annual Interest rate = 8.89%
Note that, coupon payment is the annual interest rate.
