Today is January 1. You want to buy a $1,000 par bond that pays a $40 coupon

Question:

Today is January 1. You want to buy a $1,000 par bond that pays a $40 coupon each year on December 31. The bond matures in five years and currently sells at par.

a. What is the required return on the bond?

b. Suppose you procrastinate most of the year but finally decide to buy the bond on December 30, just a day before it makes the first of five coupon payments.

What’s the price of the bond if the required rate of return has not changed?

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