Question 1197302
**1. Calculate Bond Price with 5% Yield**

* **Calculate Semiannual Coupon Payment:**
    * Annual Coupon Payment = $1000 * 6% = $60
    * Semiannual Coupon Payment = $60 / 2 = $30

* **Determine Number of Periods:**
    * Number of Periods = 9 years * 2 (semiannual) = 18 periods

* **Calculate Semiannual Yield:**
    * Semiannual Yield = 5% / 2 = 2.5%

* **Use the Bond Pricing Formula:**

   * Bond Price = 
      * (Coupon Payment * [1 - (1 + Semiannual Yield)^-Number of Periods]) / Semiannual Yield 
      * + 
      * (Face Value / (1 + Semiannual Yield)^Number of Periods)

   * Bond Price = 
      * ($30 * [1 - (1 + 0.025)^-18]) / 0.025 
      * + 
      * ($1000 / (1 + 0.025)^18)

   * Bond Price ≈ $30 * 13.7908 + $1000 * 0.6036 
   * Bond Price ≈ $393.72 + $603.60 
   * Bond Price ≈ $997.32

**2. Calculate Bond Price with 7% Yield**

* **Calculate Semiannual Yield:**
    * Semiannual Yield = 7% / 2 = 3.5%

* **Use the Bond Pricing Formula (with the new yield):**

   * Bond Price = 
      * ($30 * [1 - (1 + 0.035)^-18]) / 0.035 
      * + 
      * ($1000 / (1 + 0.035)^18)

   * Bond Price ≈ $30 * 11.9464 + $1000 * 0.4604 
   * Bond Price ≈ $358.39 + $460.40 
   * Bond Price ≈ $818.79

**3. Calculate Current Bond Yield**

* **Current Bond Yield = (Annual Coupon Payment / Bond Price) * 100%**

   * **Using the original bond price (from part 1):**
      * Current Bond Yield = ($60 / $997.32) * 100% ≈ 6.01%

   * **Using the bond price with the 7% yield (from part 2):**
      * Current Bond Yield = ($60 / $818.79) * 100% ≈ 7.32%

**Key Points:**

* **Bond Prices and Yields:** Bond prices and yields have an inverse relationship. When yields rise, bond prices fall, and vice versa.
* **Current Yield:** The current yield only considers the annual coupon payment relative to the current bond price. It doesn't account for the time value of money or the bond's maturity.
* **Yield to Maturity (YTM):** YTM is the overall return anticipated on a bond if it is held until maturity. It considers all future cash flows (coupon payments and principal repayment) and discounts them back to their present value.

**Disclaimer:** 
* This is a simplified explanation for illustrative purposes. 
* Bond pricing can be complex and may involve other factors like credit risk, liquidity, and market conditions. 
* It's always recommended to consult with a financial professional for investment advice.