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Problem: Suppose the government issues a semi-annual pay bond which matures in five years with the face value of $1,000 and a coupon yield of 10 percent.

(a) What price would you be willing to pay for such a bond when the yields to maturity (semi-annual compounding) on similar 5-year governments were 8%?

(b) What would be the price when the yields to maturity (semi-annual compounding) on similar governments were 12%?

(c) When the price of the bond is 103 19/32 per $100 of face value, what is yield to maturity?

(d) Assume you held the bond in (c) for 6 months, at which time you acquired a coupon payment and then sold the bond for price of 102 (per $100 of face value). What would be annualized holding period return?

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