On 5th December 2020, Jerome purchases a government bond worth $400, with a maturity of 3 years, face value of $500, and a coupon rate of 5% paid annually. The first coupon payment will be received a year from now (i.e., on 5th December, 2021). The yield to maturity offered by equally risky bonds is currently 7%. Such a yield to maturity stays constant over the next two years. On 5th December 2022, Jerome decides to sell this bond after receiving the second coupon payment. It turns out that, on that day, the new yield to maturity offered by equally risky bonds is 1.5%. At what price will Jerome be able to sell his bond?

On 5th December 2020, Jerome purchases a government bond worth $400, with a maturity of 3 years, face value of $500, and a coupon rate of 5% paid annually. The first coupon payment will be received a year from now (i.e., on 5th December, 2021). The yield to maturity offered by equally risky bonds is currently 7%. Such a yield to maturity stays constant over the next two years. On 5th December 2022, Jerome decides to sell this bond after receiving the second coupon payment. It turns out that, on that day, the new yield to maturity offered by equally risky bonds is 1.5%. At what price will Jerome be able to sell his bond?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 9P

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