A bond with a redemption value of £100 pays coupons of £1.50 semi-annually (i.e. the bond holder receives £1.50 twice per year), with the first coupon due in half a year. The bond will mature in ten years’ time. It is currently selling for £95.25. 1 (a) Without making any calculations can you determine which is greater: the redemption yield or the interest yield? Why? (b) Compute the redemption yield (annual effective), using a method of your choice, and explaining your calculation.
A bond with a redemption value of £100 pays coupons of £1.50 semi-annually (i.e. the bond holder receives £1.50 twice per year), with the first coupon due in half a year. The bond will mature in ten years’ time. It is currently selling for £95.25. 1 (a) Without making any calculations can you determine which is greater: the redemption yield or the interest yield? Why? (b) Compute the redemption yield (annual effective), using a method of your choice, and explaining your calculation.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A bond with a redemption value of £100 pays coupons of £1.50 semi-annually (i.e. the bond holder receives £1.50 twice per year), with the first coupon due in half a year. The bond will mature in ten years’ time. It is currently selling for £95.25.
1
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(a) Without making any calculations can you determine which is greater: the redemption yield or the interest yield? Why?
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(b) Compute the redemption yield (annual effective), using a method of your choice, and explaining your calculation.
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