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3. Assume you have a 6 months investment horizon and are trying to choose between two bonds. Bond A has an 8% coupon rate
3. Assume you have a 6 months investment horizon and are trying to choose between two bonds. Bond A has an 8% coupon rate and matures in 10 years. Bond B has a 10% coupon rate and matures in 15 years. Both bonds pay coupons twice a year. (a) If both bonds are now priced at 9% yield to maturity, what are their prices? (b) If you expect their yields to maturity to be 8.7% after six months, what will their prices be then? (c) If you hold a bond portfolio with 65% of capital on bond A and remaining capital invested in bond B, what is your portfolio's holding period return after six months (at the new YTM = 8.7%).
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