Economics · Bond Valuation
In the valuation of bonds, how does calculating the Bond Value with Semi-annual Interest compare to calculating the value with annual interest for a bond with the same coupon rate and Yield-to-Maturity (YTM)?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The semi-annual bond value will be higher only if the bond is trading at a discount (price less than face value).
- 2The semi-annual bond value will be higher because the earlier receipt and reinvestment of coupon payments increase the total present value.✓
- 3The semi-annual bond value will be lower because the compounding of cash flows reduces the present value.
- 4The semi-annual bond value will be exactly the same as the annual bond value because the total annual cash flows are identical.
Correct answer
The semi-annual bond value will be higher because the earlier receipt and reinvestment of coupon payments increase the total present value.
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