Assume the government issues a semi-annual pay bond that matures in 5 years with

Question

Assume the government issues a semi-annual pay bond that matures
in 5 years with a face value of $1,000 and a coupon yield of 10 percent.
(a) What price would you be willing to pay for such a bond if the yield
to maturity (semiannual compounding) on similar 5-year governments
were 8%?
(b) What would be the price if the yield to maturity (semi-annual
compounding) on similar governments were 12%?
(c) If the price of the bond is 103 19/32 per $100 of face value, what
is the yield to maturity?
(d) Suppose you held the bond in (c) for 6 months, at which time
you received a coupon payment and then sold the bond for a price
of 102 (per $100 of face value). What would be the annualized
holding period return?

Explanation / Answer

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