Question
A company offers a bond with exactly 100 years to maturity (now 2000 to 2100) and its face value $2,000 that makes coupon payments at
A company offers a bond with exactly 100 years to maturity (now 2000 to 2100) and its face value $2,000 that makes coupon payments at the end of each year.
Issue date: 2000; Maturity date: 2100
Coupon rate: 8%
2000 price: $2,000
2005 price: $1500
2010 price: $2,020.5
Q1: What is the interest rate in 2005 in market?
Q2: Sam bought this bond in 2005(yr) right after it made its coupon payment (he did not collect the coupon). Bob bought another bond at the same time with the same coupon rate, issue date and face value but a maturity date of 2015. Bob did not collect the coupon in 2005 either. It is 2010 now, if they were to sell their bonds today who would make more money?
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