There are two three year bonds with par values of $100; one pays $8 annually and costs $108 and the other $4 semi-annually and costs $109. You are asked to calculate the initial yield on both and then the price on both at different times in the future assuming that the yield remains the same. Please, answer in annual or semi-annual format but remain consistent for the PV calculations in c) to e).

1. What is the yield to maturity (YTM) on the annual 3 year bond?
2. What is the semi-annual yield to maturity on the semi-annual 3 year bond?
3. Assuming the same YTM in a) what is the price of the annual bond in a year when there are only 2 years left to run?
4. Assuming the same YTM in b) what is the price of the semi-annual bond in a year where there are only 2 years left to run?
5. Assuming the same YTM in b) what is the price of the annual bond in a year and a half when it has only 18 months to run?

Please, show formula used.

Answer rating: 100% (QA)

Lets calculate the prices of the bonds at different times in the future using the present value PV f... View the full answer