Question
The following table gives government bond prices (all have par value = $1000 and annual coupon payment): Bond Maturity (Years) Coupon (%) Yield to Maturity
The following table gives government bond prices (all have par value = $1000 and annual coupon payment):
Bond |
| Maturity (Years) |
| Coupon (%) |
| Yield to Maturity |
A |
| 1 |
| 0.0 |
| 0.02 |
B |
| 2 |
| 0.0 |
| 0.04 |
C |
| 3 |
| 7.0 |
| 0.05 |
D |
| 4 |
| 9.0 |
| 0.055 |
E |
| 5 |
| 9.0 |
| 0.07 |
F |
| 3 |
| 0.0 |
| 0.0512 |
G |
| 4 |
| 0.0 |
| 0.0568 |
H |
| 5 |
| 0.0 |
| 0.0624 |
a. Which coupon-paying bond (bonds) is (are) mispriced by more than $1? Why?
b. Consider Bond C and Bond F, both with 3 years to maturity but with different coupon rates. Why are the yields to maturity different? Would the difference in yields imply that one is better buy than the other? Why or why not?
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