Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Valuing semiannual coupon bonds Bonds often pay a coupon twice a year. For the valuation of bonds that make semiannual payments, the number of periods

Valuing semiannual coupon bonds
Bonds often pay a coupon twice a year. For the valuation of bonds that make semiannual payments, the number of periods doubles, whereas the
amount of cash flow decreases by half. Using the values of cash flows and number of periods, the valuation model is adjusted accordingly.
Assume that a $1,000,000 par value, semiannual coupon US Treasury note with four years to maturity has a coupon rate of 4%. The yield to maturity
(YTM) of the bond is 7.70%. Using this information and ignoring the other costs involved, calculate the value of the Treasury note:
$551,041.53
$743,468.74
$874,669.10
$1,049,602.92
Based on your calculations and understanding of semiannual coupon bonds, complete the following statement:
When valuing a semiannual coupon bond, the time period variable (N) used to calculate the price of a bond reflects the number of
periods remaining in the bond's life.
image text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

High Frequency Financial Econometrics

Authors: Yacine Aït Sahalia, Jean Jacod

1st Edition

0691161437, 978-0691161433

More Books

Students also viewed these Finance questions