Question
(1) What is the relationship between the coupon rate of a bond and the yield to maturity in terms of the bonds price. In particular,
(1) What is the relationship between the coupon rate of a bond and the yield to maturity in terms of the bonds price. In particular, when do we have a discount bond, a par bond, and a premium bond? Do not just state the relationship, but please explain the rational behind the relationship as if you are explaining this relationship to a novice of Finance. \
(2) Both Bond X and Bond Y have 5% coupons, make semiannual payments, and have YTM of 4%. Bond X has five years to maturity, whereas Bond Y has 20 years to maturity. If the interest rates (YTM) suddenly rise by 2 percent point to 6%, what is the percentage change in the price of Bond X and Bond Y? Based on your answer, what can you say about the relationship between the interest rate risk and the time to maturity?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started