8. You own two bonds. Both have a 6% coupon and pay interest semi-annually. Both have a face value of $1,000. Bond A matures in 2 years and Bond B matures in 10 years. What is the price of each bond at a market rate of 6%? What happens if rates increase to 7%? N = 2x2=4 Pr = 1,000 1/x = 6% 72 25% 3.5 IY: 3.5 PMT=1800x6% =60/230 N = 20 PMT=30 OPT PV-928.94 Fv = 1000 $981.63 9. Using the original information from Bond B above (SA 6% coupon, 10 years to maturity, 6% YTM), if one year later rates decrease by 2%, would you expect the bond to be selling at par, a premium, or a discount? By how much will the price change? If after another year, rates increase by 1%, will the bond be selling at par, a premium, or a discount? What will be the new price? FV = 100 CPT PV = 1,000