Suppose a yield curve for 6-month rates is given by the equation j = 0.0125+ 0.003 ln t, t greaterthanorequalto 1 so that the nominal annual rate is i(2) = 2j = .025 + 0.006 ln t.
Consider a $1,000 bond that matures in 5 years (10 periods).
Assume the bond pays semiannually.
(a) If the annual coupon rate is 4.0%, compute current price, and then find the yield-to-maturity.
(b) Find the at-par coupon rate.