1. Suppose you have just bought a 10-year, 6% semiannual coupon bond with $1,000 par value. Your purchasing price of the bond implies that the current YTM is 7%.
You would earn 6% rate of return if you hold this bond until the maturity.
The coupon rate will gradually increase till it becomes the same as the YTM.
Your purchasing price would have been lower than the par value.
You will receive a $30 coupon payment every six month.
The cash flows associated with the bond are an ordinary annuity for the 10 year period with a $1,000 lump sum at the maturity.
2. Intel spreads the huge fixed costs of developing new generation chips over the nearly 2 billion chips it sells to computer makers. Intel benefits from
comparative advantages
factor endowments
economies of scale
diminishing returns
absolute advantages