Bond calculations in the United States usually involve semiannual periods because bond interest is typically paid twice a year.
n c_t FV
P = $\Sigma$ ------------ + ------------
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 (maturity 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?

Question

Bond calculations in the United States usually involve semiannual periods because bond interest is typically paid twice a year.
n c_t FV
P =

\Sigma

------------ + ------------
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 (maturity 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?

Quizplus · Accepted Answer

The Answer of Bond calculations in the United States usually involve semiannual periods because bond interest is typically paid twice a year. n c_t FV P = $\Sigma$ ------------ + ------------ 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 (maturity 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?

Bond Calculations in the United States Usually Involve Semiannual Periods Σ\SigmaΣ

Bond Calculations in the United States Usually Involve Semiannual Periods $\Sigma$