Question
Consider three bonds with maturities of 2, 4, and 6 years. All three bonds have a coupon rate of 8% and have face values of
Consider three bonds with maturities of 2, 4, and 6 years. All three bonds have a coupon rate of 8% and have face values of $1,000. Assume semiannual coupon payments. Use this information to answer the following questions: a) What would be the market price of each bond if their YTM was 6%? b) What would be the market price of each bond if their YTM was 10%? c) Graph the relationship between bond prices (y-axis) and the YTM (X-axis) for the three bonds. What conclusions can you draw regarding the relationship between time to maturity and the sensitivity of bond prices to changes in interest rates?
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