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Assume you have a 6 months investment horizon and are trying to choose between two bonds. The first has an 8% coupon rate and the
Assume you have a 6 months investment horizon and are trying to choose between two bonds. The first has an 8% coupon rate and the second has a 10% coupon rate. Both mature in 10 years and pay coupons twice a year. (a.) If both bonds are now priced at 8% yield to maturity, what are their prices? (b.) If you expect their yields to maturity to be 7% at the beginning of next year, what will their prices be then? What is your holding period return on each bond?
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