a. Consider a five-year, $1,000 bond with a 5% coupon rate and semiannual coupons. If this bond
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Question:
a. Consider a five-year, $1,000 bond with a 5% coupon rate and semiannual coupons. If this bond is currently trading for a price of $957.35, what is the bond's yield to maturity?
b. Consider again the five-year, $1,000 bond with a 5% coupon rate and semiannual coupons. Suppose you are told that its yield to maturity has increased to 6.3% (expresses as an APR with semiannual compounding). What price is the bond trading for now?
c. Explain the concept of interest (price) risk using the five-year bond.
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