Question 3:

Calculate the price of the 20year, 5% coupon bond for a market interest rate of 3% per half year. Compare the capital gain for the interest rate decline to the loss incurred when the rate increases from 5% to 6%.

Question 4:

Suppose an 6% coupon, 30 year bond is selling for $1200. What are (i) bond equivalent yield (ii) effective annual yield would be if investor purchases bond at this price? Assume interest payments are semiannual