Question: You have just purchased a newly issued Company bond at par. This five year bond pays $60 in interest semiannually. You are also considering the purchase of another Company that pays USD 30 in semiannual interest payments and has 6 years remaining before maturity. This bond has a face value of USD 1,000.
[A] Suppose that the five year bond and the six year bond have the same yield. What should you be willing to pay for the six year bond?
[B] What is the yield of the five year bond expressed as an effective annual yield?
[C] How would your answer to part b] change if the five year bond pays $40 in semiannual interest instead of $60? Assume that the 5-year bond paying $40 semiannually is purchased at par.