Consider two 12 (coupon rate) $100 government bonds that differ only in that one matures in 2 years' time and the other in 5 years' time Both bonds pay the coupon annually What will be the price of each bond, given the required yield is 10 per annum What will be the price of each bond, given the required yield is 14 per annum Explain the price movements in response to interest rate changes as evidenced by parts 1 and 2

Question: Consider two 12% (coupon rate) $100 government bonds that differ only in that one matures in 2 years' time and the other in 5 years'

Consider two 12% (coupon rate) $100 government bonds that differ only in that one matures in 2 years' time and the other in 5 years' time. Both bonds pay the coupon annually.

What will be the price of each bond, given the required yield is 10% per annum?
What will be the price of each bond, given the required yield is 14% per annum??

Explain the price movements in response to interest rate changes as evidenced by parts 1 and 2

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