BOND SWAPS

You currently hold a 10 year, 7% coupon bond priced to yield 8%. As a swap candidate you are considering a 10 year, 8% coupon bond priced to yield 9%. Assume a reinvestment at 9%, semiannual compounding, and a year workout period.

Determine: 1. Determine the current year end prices of both bonds 2. Percentage gains 3. Interest on candidate bond 4. Realized compound yield of candidate bond