Consider a bond with semiannual coupons and with 15 years to maturity. The annual coupon rate is 5% and the current annual yield to maturity is 5%. The face value is 1000$. How the price of the bond changes for the next 6 months (including the time of the next coupon payment) in the efficient market? Assume that the yield to maturity of the bond does not change over next 6 months. a. The price increases monotonically to 1025$ and then drops to 1000$ right after the next coupon is paid b. The price increases monotonically to 1025$ and then drops to 975$ right after the next coupon is paid c. The price decreases monotonically to 975$ and then rises to 1000$ right after the next coupon is paid d. The price of the bond changes randomly around 1000$ e. The price of the bond is always 1000$
Consider a bond with semiannual coupons and with 15 years to maturity. The annual coupon rate is 5% and the current annual yield to maturity is 5%. The face value is 1000$. How the price of the bond changes for the next 6 months (including the time of the next coupon payment) in the efficient market? Assume that the yield to maturity of the bond does not change over next 6 months.
a.
The price increases monotonically to 1025$ and then drops to 1000$ right after the next coupon is paid
b.
The price increases monotonically to 1025$ and then drops to 975$ right after the next coupon is paid
c.
The price decreases monotonically to 975$ and then rises to 1000$ right after the next coupon is paid
d.
The price of the bond changes randomly around 1000$
e.
The price of the bond is always 1000$
![](/static/compass_v2/shared-icons/check-mark.png)
Step by step
Solved in 2 steps with 2 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
![EBK CONTEMPORARY FINANCIAL MANAGEMENT](https://www.bartleby.com/isbn_cover_images/9781337514835/9781337514835_smallCoverImage.jpg)
![Intermediate Financial Management (MindTap Course…](https://www.bartleby.com/isbn_cover_images/9781337395083/9781337395083_smallCoverImage.gif)
![Financial Management: Theory & Practice](https://www.bartleby.com/isbn_cover_images/9781337909730/9781337909730_smallCoverImage.gif)
![EBK CONTEMPORARY FINANCIAL MANAGEMENT](https://www.bartleby.com/isbn_cover_images/9781337514835/9781337514835_smallCoverImage.jpg)
![Intermediate Financial Management (MindTap Course…](https://www.bartleby.com/isbn_cover_images/9781337395083/9781337395083_smallCoverImage.gif)
![Financial Management: Theory & Practice](https://www.bartleby.com/isbn_cover_images/9781337909730/9781337909730_smallCoverImage.gif)