Question: A 20 year bond that has the same feature as one of your 30 years bonds ie, same rating and same coupon rate of 3.5%
A 20 year bond that has the same feature as one of your 30 years bonds ie, same rating and same coupon rate of 3.5% . Calculate the new price of bond at the new YTM of 2%,4%, 8%, and 10% for both 20 -years bond and 30-years bond. Plot the graph of the relationship between the price and YTM for each bond on the same graph. What did you find regarding the relationship between price and YTM for shorter and longer maturity bond? Which bond has a higher sensitive to the change in the price when the yield change?
What can you conclude regarding the relationship between bonds rating and the rate of the return bondholders will receive if they hold the bonds until the maturity date (YTM)?
| Bond | Rating | Coupon Rate (%) | Maturity (N) | YTM (%I/Y) | $ Price = % quoted price *1,000 |
| Coupon Payment = Coupon Rate %*1,000 | |||||
| Shorter Maturity Bond | AAA johnson (30 year) | 3.5 | 25 | 3.292 | $1,035.30 |
| Longer Maturity Bond | AAA microsoft (20 year bond) | 3.5 | 17 | 2.973 | $1,069.90 |
| Price@2% | Price@4% | Price@6% | Price@8% | Price@10% | |
| 30-year bond | $1,293.97 | $921.44 | $678.38 | $516.65 | $406.68 |
| 20-year bond | $1,215.27 | $938.75 | $735.85 | $585.75 | $473.73 |
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