BOND SWAPS
You currently hold a 10 year, 7% coupon bond priced to yield 8%. As a swap candidate you are considering a 10 year, 8% coupon bond priced to yield 9%. Assume a reinvestment at 9%, semiannual compounding, and a year workout period.
Determine:
1. Determine the current year end prices of both bonds
2. Percentage gains
3. Interest on candidate bond
4. Realized compound yield of candidate bond.