Question 207 income and capital returns, bond pricing, coupon rate, no explanation
For a bond that pays fixed semi-annual coupons, how is the annual coupon rate defined, and how is the bond's annual income yield from time 0 to 1 defined mathematically?
Let: P0 be the bond price now,
FT be the bond's face value,
T be the bond's maturity in years,
rtotal be the bond's total yield,
rincome be the bond's income yield,
rcapital be the bond's capital yield, and
Ct be the bond's coupon at time t in years. So C0.5 is the coupon in 6 months, C1 is the coupon in 1 year, and so on.
Question 770 expected and historical returns, income and capital returns, coupon rate, bond pricing
Which of the following statements is NOT correct? Assume that all events are a surprise and that all other things remain equal. So for example, don't assume that just because a company's dividends and profit rise that its required return will also rise, assume the required return stays the same.