Bond A is a 2-year, 8% coupon, semi-annual coupon and sells at $964.54 for 10% YTM. The maturity of the bond is 1.8852 years. Bond B is a 2-year zero coupon bond with the same maturity (1.8852 years).

–Calculate the price drop if interest rates for both bonds increase from 10% to 11%?

–What happens if YTM goes up to 11%?

– What happens if the coupon rate drops to 5%?

–What happens if the maturity is now 4 years?

Answer rating: 100% (QA)

To calculate the price drop we need to find the present value of the future cash flows of each bond ... View the full answer