Question

Consider a bond paying a coupon rate of 9.25% per year semiannually when the market interest rate is only 3.7% per half-year. The bond has five years until maturity.

a. Find the bond's price today and six months from now after the next coupon is paid. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Current price	$
Price after six months	$

b. What is the total rate of return on the bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Total rate of return             % per six months

Answer 1

a)

Hence, current price is $1,076.16

Hence, Price after six months is $1,069.73

b)

Total rate of return:

= ($1,069.73+$92.50/2-$1,076.16)/$1,076.16

= 3.70%

Hence, Total rate of return is 3.70%