Question
The YTM on a 6-month $100 par value zero-coupon bond is 18%, and the YTM on a 1-year $100 par value zero-coupon bond is 20%.
The YTM on a 6-month $100 par value zero-coupon bond is 18%, and the YTM on a 1-year $100 par value zero-coupon bond is 20%. These YTMs are semiannual BEYs.
What would be the arbitrage-free price of a 1-year annuity that makes semiannual payments of $100? Assume that the annuity is issued by the same company as the zero-coupon bonds.
What is the YTM on the annuity?
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Financial Management Principles And Applications
Authors: J William Petty, Sheridan Titman, Arthur J Keown, John D Martin, Peter Martin, Michael Burrow, Hoa Nguyen
6th Edition
1442539178, 9781442539174
