Correct Bond Calculations in the United States Usually Involve Semiannual $\mathrm{P}=$

question 34

Essay

Correct bond calculations in the United States usually involve semiannual periods because bond interest is typically paid twice a year.
$\mathrm{P}=$$\sum_{t=1}^{n}$$\begin{array}{c}\mathrm{C}_{t} \\------- \\(1+y \operatorname{tm})^{t}\end{array}$ + $\begin{array}{c}\mathrm{FV} \\------- \\(1+y \operatorname{tm})^{n}\end{array}$

$\begin{array}{l}\text { where }\\\begin{array} { l l } \mathrm{P} & =\text { the current market price of the bond } \\n & =\text { the number of semiannual periods to maturity } \\\mathrm{ytm} & =\text { the semiannual yield to maturity to be solved for } \\\mathrm{c} & =\text { the semiannual coupon in dollars } \\\mathrm{FV} & =\text { the face value (maturity or par value) which in this discussion is always } \$ 1,000\end{array}\end{array}$
What does this formula imply about the term structure of interest rates?How would real-world bond investors price bonds to correct for this?

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Definitions:

American Call Option

A type of call option that can be exercised at any time before its expiration date, allowing the holder to buy the underlying asset at the specified strike price.

Exercise Price

The specified price at which the option holder can buy (call option) or sell (put option) the underlying asset or security when exercising their option.

Value Increase

The rise in the worth or market value of an asset or investment over time.

Warrants

Financial derivatives that give the holder the right, but not the obligation, to buy or sell a security at a predetermined price before or on a specified date.