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Question:
A non-zero coupon bond carries a coupon rate of 8 percent and has 9 years until maturity. It sells at a yield to maturity of 6 percent. The par value of the bond is Rs 1000.
(a) Briefly define the following fundamental features of a bond:
(i) Par value (ii) Coupon payment (iii) Coupon rate (iv) Maturity date
(b) What is the difference between a zero coupon bond and a non-zero coupon bond?
(c) Explain how you would calculate the price of a zero coupon bond?
(d) Explain how you would calculate the price of a non-zero coupon bond?
(e) In the scenario described at the beginning of this question, state what interest payments do bondholders receive each year?
(f) At what price does the bond sell, if we assume annual payments?
(g) At what price does the bond sell, if we assume semi annual coupon payments and semi annual compounding of interest?
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