Suppose a coupon bond with a par value of ($ 1,000) pays a semiannual coupon payment of
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Suppose a coupon bond with a par value of \(\$ 1,000\) pays a semiannual coupon payment of \(\$ 20\). (This is fair-priced at issue at an annual rate of \(4 \%\).)
(a) Now, suppose the annual interest rate has risen to 6\% (3\% semiannually). What is the fair market price of this bond if the remaining time to maturity is 2 years?
What is the fair market price of a zero-coupon bond with everything else being the same as the previous question?
(b) Now, suppose the annual interest rate has dropped to \(3 \%\). What is the fair market price of this bond if the remaining time to maturity is 2 years?
What is the fair market price of a zero-coupon bond with everything else being the same as the previous question?
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