Response to the following problem:
Edward Jones Co. owns vast amounts of corporate bonds. Suppose Edward Jones buys $1,000,000 of Dow Jones & Co. bonds at a price of 96. The Dow Jones bonds pay cash interest at the annual rate of 7% and mature within five years.
1. How much did Edward Jones pay to purchase the bond investment? How much will Edward Jones collect when the bond investment matures?
2. How much cash interest will Edward Jones receive each year from Dow Jones & Co.?
3. Will Edward Jones' 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 Edward Jones' annual interest revenue on this bond investment. Use the straight-line method to amortize the discount on the investment.