Question
Using semiannual compounding, find the prices of the following bonds: a. A 9.4%, 15-year bond priced to yield 7.6%. b. A 7.6%,10-year bond priced to
Using semiannual compounding, find the prices of the following bonds:
a. A 9.4%, 15-year bond priced to yield 7.6%.
b. A 7.6%,10-year bond priced to yield 9.4%.
c. A 12.5%, 20-year bond priced at 10.7%.
Repeat the problem using annual compounding. Then comment on the differences you found in the prices of the bonds.
A1. Using semiannual compounding, the price of the bond is $___.
B1. Using semiannual compounding, the price of the bond is $___.
C1. Using semiannual compounding, the price of the bond is $___.
A2. Using annual compounding, the price of the bond is $___.
B2. Using annual compounding, the price of the bond is $___.
C2. Using annual compounding, the price of the bond is $___.
Comment on the differences you found in the prices of the bonds.
Bonds selling at a premium sell at lower prices when the interest is compounded semiannually as opposed to annually. Accordingly, bonds selling at a discount sell at lower prices when the interest is compounded annually as opposed to semiannually.
Bonds selling at a premium sell at higher prices when the interest is compounded semiannually as opposed to annually. Accordingly, bonds selling at a discount sell at higher prices when the interest is compounded annually as opposed to semiannually.
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