Question
Bond X is a premium bond making semiannual payments. The bond pays a coupon rate of 8.5%, has a YTM of 7%, and has 13
Bond X is a premium bond making semiannual payments. The bond pays a coupon rate of 8.5%, has a YTM of 7%, and has 13 years to maturity. Bond Y is a discount bond making semiannual payments. This bond pays a coupon rate of 7%, has a YTM of 8.5%, and has 13 years to maturity. What is the price of each bond today? If interest rates are unchanged, what do you expect the price of these bonds to be one year from now? In three years? In eight years? In 12 years? In 13 years?
Illustrate your answers by graphing bond prices versus time to maturity.
Please explain.
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