Consider two corporate bonds, A and B, each with a face value of $1,000, remaining term of 10 years and yield to maturity of 8 per annum A has a coupon rate of 0 and B has a coupon rate of 6 and makes semi annual payments Calculate the current price of each bond Assume that the yield to maturity of each bond increases from 8 to 10 per annum Calculate the percentage change in price of each bond Instead assume that the yield to maturity of each bond decreases to 6 Calculate the percentage change in price of each bond Based on (b) and (c) what conclusions can you draw about the relationship between interest rates, coupon rates and bond prices

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Question: Consider two corporate bonds, A and B, each with a face value of $1,000, remaining term of 10 years and yield-to-maturity of 8% per annum.

Consider two corporate bonds, A and B, each with a face value of $1,000, remaining term of 10 years and yield-to-maturity of 8% per annum. A has a coupon rate of 0% and B has a coupon rate of 6% and makes semi-annual payments.

Calculate the current price of each bond
Assume that the yield to maturity of each bond increases from 8% to 10% per annum.

Calculate the percentage change in price of each bond.

Instead assume that the yield to maturity of each bond decreases to 6%.

Calculate the percentage change in price of each bond.

Based on (b) and (c) what conclusions can you draw about the relationship between

interest rates, coupon rates and bond prices.

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