Question

On 1 April 2020, the AOFM issued seven-year Government fixed-interest bonds with a face value of $25 million, paying half-yearly coupons at 6.50 per cent per annum. Coupons are payable on 31 March and 30 September each year until maturity.

On 15 September 2022, the holder of the bonds sells at a current yield of 6.75 per cent per annum. You are required to calculate:

- n (number of periods)
- i (current yield)
- C (coupon payment)
- k (fraction of elapsed interest period since the last coupon payment)
- P (price at which the bonds will be sold)

(Hint: The seller of the bond must take account of the fact that the bond is between coupon payments

Answer #1

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