Question: The yield to maturity on two 1 0 - year maturity bonds currently is 7 % . The bond has a call price of $

The yield to maturity on two

10 -

year maturity bonds currently is

7 % .

The bond has a call price of $

1, 100 .

The has a coupon rate of

8 %,

the other

8 % .

Assume for simplicity that bonds are called as soon as the present value of their remaining payments exceeds their call price. What will be the capital gain on each bond if the market interest rate suddenly falls to

6 % ?

Show me the calculations!

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