What happens if the value of YTM and the coupon rate \(c\) are the same? By applying Eq. (3.33), we find

Thus, when \(c=y_{1}\), the bond trades at par.

By the same token if \(c>y_{1}\), by using Eq. (3.34), we see that the bond price is an average between 1 and a number larger than 1. Hence, \(P_{c}(0, T)>F\) and the bond trades at premium. On the contrary, if \(c

Data From Equation (3.33)

Data From Equation (3.34)

Transcribed Image Text:

P.(0,T) = + F.(1-c/c) C (1+c)T = F.