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Question
Correct bond calculations in the United States usually involve semiannual periods because bond interest is typically paid twice a year.n ct FV
P = ∑ ------------ + ------------
t=1 (1 + ytm)t (1 + ytm)n
where
P = the current market price of the bond
n= the number of semiannual periods to maturity
ytm = the semiannual yield to maturity to be solved for
c = the semiannual coupon in dollars
FV = the face value (or maturity value or par value) which in this discussion is always $1,000
What does this formula imply about the term structure of interest rates? How would real-world bond investors price bonds to correct for this?
Answer
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