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The general bond pricing formula for fixed-coupon bonds, assuming settlement on a coupon date, is as follows: $$ P = \sum_{i=1}^N \frac{c/f}{(1 + y/n)^{nt}}, $$ where $c$ is the size of the cash flow, $f$ is the coupon frequency per year, $y$ is the annualized yield, and $n$ is the compounding frequency per year. In your case, $c$ should be $2.5/2=1.25$. ...


"A bat and a ball together cost $1.10. The bat costs $1 more than the ball. How much does the ball cost?" 10c A C B 5c They cannot possibly be compared because risk is unknown. Which bond corresponds to what business?


This is a very broad question and a large number of issues have been discussed in the literature. As such, it's hard to give specific advice except that it is better to model returns instead of prices directly. What I would do if I were you: Read some of the available literature to get a good overview. This is an interesting paper but many more exist. ...

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