Question
Bond X is a premium bond making semiannual payments. The bond pays a coupon rate of 7.4 per cent, has a YTM of 6.8 per
Bond X is a premium bond making semiannual
payments. The bond pays a coupon rate of 7.4 per cent, has a YTM of 6.8 per cent, and
has 13 years to maturity. Bond Y is a discount bond making semiannual payments.
This bond pays a coupon rate of 6.8 percent, has a YTM of 7.4 percent, and also has
13 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 12 years? In 13 years? Whats going on here? Illustrate
your answers by graphing bond prices versus time to maturity.
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