Question: Face Value Bond A Bond B Years to maturity 15 15 Annual Coupon rate 8% 6% $1.000 $1,000 Current Yield to maturity 7.5% 7.5% Required:

 Face Value Bond A Bond B Years to maturity 15 15
Annual Coupon rate 8% 6% $1.000 $1,000 Current Yield to maturity 7.5%

Face Value Bond A Bond B Years to maturity 15 15 Annual Coupon rate 8% 6% $1.000 $1,000 Current Yield to maturity 7.5% 7.5% Required: a. What rate of return would you earn if purchased Bond A now, and then sold it one year later when its yield to maturity was 7.25%? (4 marks) b: Independent of partial assume Bond Als priced at $980 and your required rate of return is 8.296. Should you purchase the bond? (2 marks) b. Independent of part (a), assume Bond A is priced at $980 and your required rate of return is 8.2%. Should you purchase the bond? (2 marks) Independent of parts (a) and (b) what do you think will happen to the bond prices of both Bonds A and B over time, assuming the yield to maturity remains the same? (You do not have to do any calculations), just provide a brief explanation of what will happen to each bonds' price. (2 marks)

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