Assumptions :
All payments occur at the end of the period unless stated otherwise.
Interest is compounded annually unless stated otherwise.
Face value of all bonds is $1000.
Starbucks has one debt issue outstanding. The debt matures on August 15, 2017, and has a 6.25% coupon. Coupons are paid semiannually. The bond is priced to yield 1.61% compound semiannually. The bond has a face value of $1000.
Q1. Estimate the price of the bond on February 15, 2013, immediately after that coupon is paid.
Q2. You buy the bond on February 15, 2013 for your estimated price from part a. You sell the bond 1 year later for $1160. What was your return? Why is it different from the original yield to maturity? Assume you collect 2 coupon payments.