You are considering the purchase of a bond with a semiannual coupon of $40, ten years to maturity, a face value of $1,000, and a current market price of $1,000.
a. At what price will the bond sell in the market in 6 months, immediately after the first coupon payment, if the stated annual yield on the bond (in six mos.) is 4%?
b. If you were to buy the bond now and sell it after six mos., what holding period rate of return would be earned over the six month period?
The solution calculates the bond prices after 6 months and the holding period rate of return if the bond is purchased now and sold at the end of 6 months.