kfp22
June 6, 2014, 4:33am
#1
When the question says a bond payds 5% semiannual coupon, does it mean 5% annualized rate? i.e. each 6 months we get 2.5% only?

or does it actually mean each 6 months we receive 5%*Notional please?

Exact text:

“On July 1, 2009, Viper purchased $7 million of Vega’s 5% semiannual coupon mortgage bonds at par.”

Thanks!

In one of the question on the mock they used 5%/2 (i.e 2.5% as coupon and coupon payment was Facevalue * 2.5%) got my answer wrong Cause I was using 5% directly (the question was about forward on bond)

kfp22
June 6, 2014, 4:42am
#3
this is really confusing the way they quote it

they should just say: 5% bond with semiannual payment. Then for sure we are talking about 2.5%*Notional every 6months

Interest rates (and coupon rates) are always – _ always! _ – quoted annually.

so basically in a given problem we always have to divide coupon rate by 2 for calculating semiannual coupon payments?

kmart
June 6, 2014, 5:04am
#8
Ha I just did that question. Totally forgot everything in level 1…