On 1 April 2024, you’ve just purchased a 10-year bond issued by MTR Corporation to finance the future railway development. The bond has a face value of $1,000 and carries 8% coupon, paid semi-annually. The yield of the bond is (APR) 10%, compounded semi-annually.
(a) How much did you pay to buy the bond on 1 April 2024?
(b) Is the bond a par bond, discount bond or premium bond? Explain.
(c) On 31 March 2025, the bond becomes a par bond as its yield has decreased from (APR) 10% to (APR) X%, compounded semi-annually.
(i) What is the value of X? Explain.
(ii) If you sell the bond immediately after receiving the (second) coupon, calculate the capital gain yield.