Question: Bond M is a 4 % coupon bond and Bond N is a 12% coupon bond. Both bonds have twelve years to maturity and issued

Bond M is a 4 % coupon bond and Bond N is a 12% coupon bond. Both bonds have twelve years to maturity and issued 2 years ago, make annual payment and have YTM of 8%.

i. Calculate the bond value for both bonds.

ii. If interest rate suddenly rises by 2%, what is the price of both bonds now?

iii. If interest rate suddenly falls by 2%, what is the price of both bonds now

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To calculate the bond values we need to use the present value formula for bonds which is the present value of the coupon payments plus the present value of the face value or maturity value The formula ... View full answer

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