The value of a bond that pays semiannual interest is greater than that of an otherwise equivalent annual coupon interest paying bond.

Question

Quizplus · Accepted Answer

The value of a bond is based on its present value, which takes into account the bond's future cash flows, including its interest payments. Since a bond that pays semiannual interest makes more frequent interest payments, the compounding effect of those payments results in a higher present value, making the bond more valuable than an equivalent annual coupon interest paying bond.

The Value of a Bond That Pays Semiannual Interest Is