Case 13- Bond Valuation

-At the meeting, a committee member asks, The two 25-year bonds have the same maturity date, so why do the current yields and capital gain yields of these bonds differ? How do you reply to the committee member? (Hint: No additional calculations are required.)

-Next, the committee member notices that there is an expected capital gain on one of the 25-year bonds and a capital loss on the other and so asks, assuming current interest rates dont change, will these gains and losses continue over the life of the bond? (Hint: In one figure, graph the expected value of each bond over the 25 years to maturity.)