Question
You open the Wall Street Journal and notice a bond with a seven year maturity, 8% coupon rate, annual coupons, and $1000 face value trading
You open the Wall Street Journal and notice a bond with a seven year maturity, 8% coupon rate, annual coupons, and $1000 face value trading for at a yield to maturity of 9.0%. (a) What is the price of the bond? (b) One year later, the bond is still trading at a yield to maturity of 9.0%. What is the price of the bond at that time (just after receiving the coupon)? (c) Four years later (from part a), the bond is still trading at a yield to maturity of 9.0%. What is the price of the bond at that time (just after receiving the coupon)? (d) What is happening to the price of the bond over time? Why?
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