Question
A 20 year Australian government bond was just issued at par with a yield of 3% pa. The fixed coupon payments are semi-annual. The bond
A 20 year Australian government bond was just issued at par with a yield of 3% pa. The fixed coupon payments are semi-annual. The bond has a face value of $1,000. Four years later, just after the eighth coupon is paid, the yield of the bond decreases to 2% pa. Which of the following statements is NOT correct?
a. The value of the bond on the maturity date, just after payment of the last coupon and face value, will be $0
b. After the eighth coupon is paid, the bond will trade at a premium.
c. The bond price is expected to rise by 2% from just after the eighth coupon, to just before the ninth coupon.
d. The value of the bond on the maturity date, just before the last coupon payment, will be $1,015
e. After the eighth coupon is paid, the number of future coupons (T) will be 12.
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