Kelly is considering investing in one of two bonds. The bonds are both $1,000 par value and have 11% annual coupon rates. Bond A has 7 years to maturity and bond B has 12 years to maturity. Currents yields are 8% for each bond. Calculate the current value of each bond and explain which bond you would purchase if you wanted to maximize interest rate risk? If yields increased by 1.0% in one year, what would be the new bond prices and show the % return from each bond.

Answer rating: 100% (QA)

To calculate the current value of each bond we can use the formula for the present value of a bond w... View the full answer