In calculating the current price of a bond paying semiannual coupons, one needs to
A) use double the number of payments.
B) use half the annual coupon.
C) use half the annual rate as the discount rate.
D) All of the above need to be done.

Question

Quizplus · Accepted Answer

All of the above choices need to be done in order to accurately calculate the current price of a bond paying semiannual coupons.

Using double the number of payments ensures that the number of coupon payments is accounted for in the present value calculation.

Using half of the annual coupon rate is necessary because the coupon payment is being made twice per year instead of once, meaning each payment is half of the annual amount.

Using half of the annual rate as the discount rate is necessary because the semiannual coupon payments mean that interest is being earned on the investment every six months instead of once a year.

In Calculating the Current Price of a Bond Paying Semiannual