Question: Consider two bonds, Bond C and Bond D, both with a yield to maturity of 10 (7.3) percent and with 5 years to maturity. These

  1. Consider two bonds, Bond C and Bond D, both with a yield to maturity of 10 (7.3) percent and with 5 years to maturity. These are standard bonds with semiannual coupon payments. Bond C has a coupon rate of 10 (8.4) percent (with semiannual coupon payments); Bond D does not pay any coupons (i.e., it a zero-coupon bond). What is the price of each bond?
  2. Consider the bonds in question 1. Suppose interest rates decline, causing the yield to maturity for each bond to immediately decline to 9 percent. What is the new price of each bond? (Hint: Consider the semiannual yield to maturity.)

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