JULIA LIMITED SELLS A 12-YEAR SEMI-ANNUAL COUPON BOND THAT HAS AN...

12. Julia Limited sells a 12-year semi-annual coupon bond that has an effective annual return of 4.6529%. What is the amount of each interest payment if the bond issue price is the same as the face value of the bond? A) 22.50 B) 22.75 C) 23.00 D) 46.00 E) 45.53 Solution: C First we need to calculate the YTM of the bond as an APR on the basis semi-annual compounding. YTM (APR) = m x [(1 + EAR)

^1/m

– 1]= 2 x [(1 + 0.046529)

^½

- 1] = 4.6% compounded semi-annually. Given that the bond is selling at face value. The annual coupon rate =YTM (4.6%). Therefore the semi - annual coupon = ($1,000 x 4.6%)/ 2 = $23.