Question
You own two bonds. Bond A is a 5% semi annual coupon bond with a face value of $1000 and has 5 years to maturity.
You own two bonds. Bond A is a 5% semi annual coupon bond with a face value of $1000 and has 5 years to maturity. Its current market yield is 7%. Bond B is a 3% semi annual coupon bond with a face value of $1000 and 10 years to maturity. It has a current market yield of 2%.
A.Calculate the price of each of these bonds on the coupon payment dates over the next 5 years. Use a line graph to present your results. (10 Marks)In Excel
B. Now imagine that after 3 years the yield on both bonds increases by 2%. Redo all calculations form Question A as well as the line graph. Which bond experienced a bigger change in value due to the yield change? (20 Marks)In Excel
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