Question: A 20-years 8% bond has semi-annual coupons and a face amount of 100. It is quoted at a purchase price of 70, 400 (in decimal form, not 1/32 form).
(a) Find the yield rate.
(b) Suppose that the bond was issued January 15, 2000, and is bought by a new purchaser for a price of 112.225 on January 15, 2005 just after a coupon has been paid.
(i) Find the yield rate for the new purchaser.
(ii) Find the yield rate (internal rate of return) earned by the original bondholder.
(iii) Suppose that the original bondholder was able to deposit coupons into an account earning an annual interest rate of 6% convertible semi-annually. Find the average effective annual rate of return earned by the original bond purchaser on his 5-year investment. Assume that interest on the deposit account is credited every January 15 and July 15.
(c) Suppose that the bond was issued January 15, 2000, and is bought by a new purchaser on April 1, 2005 for a market price of 112.225.
(i) Find the yield rate for the new purchaser.
(ii) Find the yield rate (internal rate of return) earned by the original bondholder.