Question
Bond A is a premium bond making semiannual payments. The bond pays a 8 percent coupon, has a YTM of 6 percent, and has 10
Bond A is a premium bond making semiannual payments. The bond pays a 8 percent coupon, has a YTM of 6 percent, and has 10 years to maturity. Bond Y is a discount bond making quarterly payments. This bond pays a 8 percent coupon, has a YTM of 10 percent, and also has 10 years to maturity. What is the price of each bond today? If interest rates remain unchanged, What do you expect the price of these bonds to be one year from now? In three years? In eight years? In 10 years? Whats going on here? Illustrate your answers by graphing bond prices versus time to maturity.
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