Problem: DEF has an outstanding debt issue. The debt maturity is May 10, 2018 with a 6.25% coupon, which is paid semiannually. The bond has a face value of $1000 and yield is 1.61% compounded semiannually.
1. Estimate the price of the bond on November 10, 2014 after the coupon is paid.
2. Company B purchases the bond on November 10, 2014 for the price above. The bond is sold in one year for $1160. Calculate the return. Why is it different from the original yield to maturity assuming that you collect two payments?