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Calculate the buying price-selling price and dollar profit

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A bond is purchased with a face value of $100, a time to maturity of three years, a coupon of 2% pa with semi-annual payments and a yield of 1.05% pa. One year later (immediately after the second coupon has been paid), the Reserve Bank of Australia unexpectedly decreases the cash rate. The yield on this bond decreases to 0.87% pa and the bond is sold.

Required

Calculate the buying price, selling price and the dollar profit or loss made on selling the bond (ignore coupons when calculating the profit), outlining why this profit or loss has occurred. (In dollars and cents accurate to the nearest cent)

Reference no: EM132842613

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