8-year note: Semiannual coupon payments = 6.7%($1,000)/2 = $33.50 Number of semiannual payments = 8 (2) = 16 Future Value at maturity = $1,000 Required semiannual return = 8.50%/2 = 4.25% Compute price = $897.04 26-year bond: Semiannual coupon payments = 9.25%($1,000)/2 = $46.25 Number of semiannual payments = 26 (2) = 52 Future Value at maturity = $1,000 Required semiannual return = 9.00%/2=4.50% Compute price = $1,024.96 28-year bond: Semiannual coupon payments = 7.75%($1,000)/2 = $38.75 Number of semiannual payments = 28 (2) = 56 Future Value at maturity = $1,000 Required semiannual return = 9.00%/2 = 4.50% Compute price = $872.92 The note and 28 year bond have coupons below their respective required returns and are selling below their $1,000 par value. Therefore, they are selling at a discount. The 26 year bond has a coupon above the required return and is selling above the $1,000 par value. Therefore, it is selling at a premium. 8. Based on the bond analysts current expected prices of the company's debt, what is the nominal yield to maturity of each issue in the portfolio? What is the effective annual rate? Would you expect a semiannual payment bond to sell at a higher or lower price than an otherwise equivalent annual payment bond? Explain why. 8-year note: Semiannual coupon payments = 6.7%($1,000)/2 = $33.50 Number of semiannual payments = 8 (2) = 16 Future Value at maturity = $1,000 Required semiannual return = 8.50%/2 = 4.25% Compute price = $897.04 26-year bond: Semiannual coupon payments = 9.25%($1,000)/2 = $46.25 Number of semiannual payments = 26 (2) = 52 Future Value at maturity = $1,000 Required semiannual return = 9.00%/2=4.50% Compute price = $1,024.96 28-year bond: Semiannual coupon payments = 7.75%($1,000)/2 = $38.75 Number of semiannual payments = 28 (2) = 56 Future Value at maturity = $1,000 Required semiannual return = 9.00%/2 = 4.50% Compute price = $872.92 The note and 28 year bond have coupons below their respective required returns and are selling below their $1,000 par value. Therefore, they are selling at a discount. The 26 year bond has a coupon above the required return and is selling above the $1,000 par value. Therefore, it is selling at a premium. 8. Based on the bond analysts current expected prices of the company's debt, what is the nominal yield to maturity of each issue in the portfolio? What is the effective annual rate? Would you expect a semiannual payment bond to sell at a higher or lower price than an otherwise equivalent annual payment bond? Explain why