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Consider a bond that pays coupon interest of $ 4 5 at the end of each six - month period and that has a face
Consider a bond that pays coupon interest of $ at the end of each sixmonth period and that has a face value of $ The bond will mature twenty years from today. The bond is currently trading in the market for a price of $ of face value
a What is the bonds yield to maturity? Be clear if you are stating the rate as an annual amount or an amount per six months, and about your compounding assumptions
b Suppose now that this bond pays coupon interest in the amount of $ at the end of each year instead of $ at the end of each sixmonth period. The compound annual yieldtomaturity for the bond is the same as before. That is we are changing only this one bond characteristic, not the bonds default risk or market interest rates. Will the bond with endofyear coupon payments have a value that is higher than, lower than, or the same as the bond with semiannual coupon payments? Explain the reasoning for your answer no numbers are required to answer this question.
c Compute the specific value of the bond with endofyear coupon payments.
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