easy · CFA Level I Fixed Income
A bond pays a 30 semiannual coupon. On a financial calculator, an analyst enters N as the number of YEARS to maturity rather than the number of coupon periods, and enters the annual yield rather than the periodic one.
The most likely effect on the computed price is that:
- Only half the coupon payments are counted, so the price is understated.
- Accrued interest is left out, so a clean price is returned instead of a full price.
- The two errors cancel, because halving the periods offsets doubling the rate.
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