BOND VALUATION An investor has two bonds in her portfolio, Bond C and Bond Z. Each bond matures in 4 years, has a face value of $1,000, and has a yield to maturity of 9 6%.

Bond C pays a 10% annual coupon, while Bond Z is a zero coupon bond.

a. Assuming that the yield to maturity of each bond remains at 9 6% over the next 4 years, calculate the price of the bonds at each of the following years to maturity:

Years to Maturity Price of Bond C Price of Bond Z 4 ____________ ____________ 3 ____________ ____________ 2 ____________ ____________ 1 ___________ ___________ 0 ____________ ____________

b. Plot the time path of prices for each bond.

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