Consider two bonds: bond XY and bond ZW. Bond XY has a face value of $1,000 and 10 years to maturity and has just been issued at par. It bears the current market interest rate of 7% (i.e. this is the yield to maturity for this bond). Bond ZW was issued 5 years ago when interest rates were much higher. Bond ZW has face value of $1,000 and pays a 13% coupon rate. When issued, this bond had a 15-year, so today its remaining maturity is 10 years. Both bonds make annual coupon payments.

2. a) What is the price of Bond ZW, given that market interest rates are 7%?
4. b) Compute the duration for both bonds (use Excel).

Answer rating: 100% (QA)

To calculate the price of Bond ZW and compute the duration for both bonds well follow these steps a ... View the full answer