Question
Consider the following three government bonds: Bond Bond Price Coupon Rate Maturity Bond Bond price Coupon rate Maturity x $1,034.98 5% 3 Years Y $943
Consider the following three government bonds:
Bond Bond Price Coupon Rate Maturity
| Bond | Bond price | Coupon rate | Maturity |
| x | $1,034.98 | 5% | 3 Years |
| Y | $943 | 0% | 1 years |
| Z | ? | 0% | 2 years |
Assume that each bond has a par value of $1,000 and that coupon payments are made annually. The first coupon payments will be made one year from today. Suppose, bond Z does not pay any coupons, but it will pay its par value of $1,000 back exactly two years from today. If the interest rate of these bonds remains constant over time; is it true that the price of bond Z will be higher than the price of bond Y? Do you agree? Justify your opinion for or against it. (Use formula)
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Options Trading For Beginners How To Generate Predictable Income And Make A Living Without Taking Big Risks Even If You Re A Complete Beginner
Authors: Greg Middleton
1st Edition
979-8866955046
