You invest in a three-year bond with a face value of $100, a yield of 4% pa, and a fixed coupon rate of 7% pa, paid semi-annually. So, there are two coupons per year, paid in arrears every six months. The corporate tax rate is 30%.
Which of the following statements is NOT correct?
a.
The current bond price is $108.4021
b.
The effective annual rate of the three year bond is 4.0400%
c.
If this company also has a 2 year bond on the issue with a semi-annual yield of 2%, the forward rate over the third year (from t=2 to t=3), expressed as an effective annual rate, is 8.2220%
d.
The bond quotes indicate that the yield curve is normal (upward sloping).
e.
The extra interest tax shields generated for the issuing company due to the bond will be $2.10
