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You have just purchased a newly issued $1,000 five-year bond from ABC, Inc., at par. This bond (bond A) pays $55 in coupon interest semiannually
You have just purchased a newly issued $1,000 five-year bond from ABC, Inc., at par. This bond (bond A) pays $55 in coupon interest semiannually ($110 a year). You are also negotiating the purchase of a $1,000 ABC bond (bond B) that returns $75 in semiannual coupon payments ($150 per year) and has five years remaining to maturity; the next semiannual coupon payment for bond B is exactly six months away.
What is the yield-to-maturity on five-year ABC bonds?
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