You own two bonds. Bond A is a 5% semi-annual coupon bond with a face value of
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Question:
You own two bonds. Bond A is a 5% semi-annual coupon bond with a face value of $1000 and has 5 years to maturity. Its current market yield is 7%. Bond B is a 3% semi-annual coupon bond with a face value of $1000 and 10 years to maturity. It has a current market yield of 2%.
A. Calculate the price of each of these bonds on the coupon payment dates over the next 5 years. Use a line graph to present your results.
B. Now imagine that after 3 years the yield on both bonds increases by 2%. Redo all calculations from A as well as the line graph. Which bond experienced a bigger change in value due to the yield change?
Related Book For
Financial Markets And Institutions
ISBN: 978-0132136839
7th Edition
Authors: Frederic S. Mishkin, Stanley G. Eakins
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