Consider a bond paying a coupon rate of 10% per year semiannually when the market interest rate is only 4% per half-year. The bond has three years until maturity.a. Find the bond’s price today and six months from now after the next coupon is paid.b. What is the total (6-month) rate of return on the bond?

Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter4: Bond Valuation
Section: Chapter Questions
Problem 14P: Current Yield with Semiannual Payments A bond that matures in 7 years sells for $1,020. The bond has...
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Consider a bond paying a coupon rate of 10% per year semiannually when the market interest rate is only 4% per half-year. The bond has three years until maturity.
a. Find the bond’s price today and six months from now after the next coupon is paid.
b. What is the total (6-month) rate of return on the bond?

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In part (b), why was the coupon payment added to the difference between the current and inital price?

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