COMPARING TWO BONDS Market interest rate 3.1% Coupon rate Maturity Face value Price Bond A 10% 10 1,000.00 Bond B 10% 20 1,000.00 Comparing Bonds 1) Find the prices of these annual coupon bonds A and B (a reliable way would be to sketch out the cash flows of the bonds in a table and find value today!). Assume the bonds were just issued. You can think of the "market interest rate" as the YTM on bonds with similar risk. 2) Create a data table that shows how the bond prices vary with the interest rate (use 0 to 15%, by 50 basis points). 3) Plot your data table. What do you notice about the shape of the curves on the plot? Compare the shape of the YTM-price curves for bonds A and B. COMPARING TWO BONDS Market interest rate 3.1% Coupon rate Maturity Face value Price Bond A 10% 10 1,000.00 Bond B 10% 20 1,000.00 Comparing Bonds 1) Find the prices of these annual coupon bonds A and B (a reliable way would be to sketch out the cash flows of the bonds in a table and find value today!). Assume the bonds were just issued. You can think of the "market interest rate" as the YTM on bonds with similar risk. 2) Create a data table that shows how the bond prices vary with the interest rate (use 0 to 15%, by 50 basis points). 3) Plot your data table. What do you notice about the shape of the curves on the plot? Compare the shape of the YTM-price curves for bonds A and B