Question
Exactly two years ago you purchased a $10,000 ten year NY State Dormitory Authority bond with a coupon rate of 2.5% . Today, a ten
Exactly two years ago you purchased a $10,000 ten year NY State Dormitory Authority bond with a coupon rate of 2.5% . Today, a ten year NY State Dormitory Authority bond carries a coupon rate of 4.5% . What is the present value of your two year old bond? If you sell the bond today for exactly its value and use the money to purchase another ten year NY State Dormitory Authority bond with a coupon rate of 4.5% what will your semi-annual income from the sale price be? Of course you cannot purchase bonds for odd amounts. However, if you purchase another $10,000 bond the income from the sale of the first bond will be a proportional amount of the entire income. Therefore you can calculate as though you were able to purchase a bond for the odd amount.
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