Imagine that you are supposed to design standard coupon bonds that mature in 10 years. Coupons are paid semiannually with the first coupon payment occurring six months from now. (Standard refers to a non-callable bond contract that does not involve any default considerations.)
A)In the following, you find the basic parameters of contract A that you have to adhere to:
• Face value: $50,000,
• Price of the contract today (i.e., 10 years before maturity): $47,000,
• Yield (annualized): 3.5%.
What is the annualized coupon rate of contract A?
B)In the following, you find the basic parameters of contract B that you have to adhere to:
• Price of the contract today (i.e., 10 years before maturity): $175,000,
• Yield (annualized): 3%, • Coupon rate (annualized): 2.5%.
What is the face value of contract B?
Please show your work as well. Thank you!