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Bond A has a coupon rate of 10% annual coupon payment, and has par value of $1,000.Bond B has a coupon rate of 8% annual
Bond A has a coupon rate of 10% annual coupon payment, and has par value of $1,000.Bond B has a coupon rate of 8% annual coupon payment, and has par value of $1,000.Both bonds have 5 years to maturity and an annual YTM of 10% Calculate prices of bond B at t = 0 and bond A (after coupon payment) at t = 1. b. After one year, the annual YTM of bond A increases to 12%. What is the new price of bond A (after coupon payment at t = 1)? You buy the bond at t = 0. After change in interest rate, you sell at t = 1 immediately after first coupon payment. What total annual return did you realize over the first year? Is your return higher or lower than the initial YTM? Why? (Explain the reason in one sentence.) Suppose the annual YTM of bond B increases to 12% as well after one year. Which bond price is affected more by the same change in interest rate and what is the intuition (reason)
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