Bond X is a premium bond making semi annual payments. The bond has a coupon of 7.5%, or go to maturity of 6%, and 13 years to maturity. Bond Y is a discount bond making semi annual payments. The bond has a coupon rate of 6%, a yield to maturity of 7.5%, and also 13 years to maturity. What are the prices of these bonds today assuming both bonds have $1000 par value? If the interest rate remains unchanged, what do you expect the price of these bonds to be in one year? In three years? In eight years? In 12 years? In 13 years? What's going on here? Illustrate your answer by graphing the bond prices versus time to maturity. Excel would be good. Thanks
Bond X is a premium bond making semi annual payments. The bond has a coupon of 7.5%, or go to maturity of 6%, and 13 years to maturity. Bond Y is a discount bond making semi annual payments. The bond has a coupon rate of 6%, a yield to maturity of 7.5%, and also 13 years to maturity. What are the prices of these bonds today assuming both bonds have $1000 par value? If the interest rate remains unchanged, what do you expect the price of these bonds to be in one year? In three years? In eight years? In 12 years? In 13 years? What's going on here? Illustrate your answer by graphing the bond prices versus time to maturity. Excel would be good. Thanks
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
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Question
- Bond X is a premium bond making semi annual payments. The bond has a coupon of 7.5%, or go to maturity of 6%, and 13 years to maturity. Bond Y is a discount bond making semi annual payments. The bond has a coupon rate of 6%, a yield to maturity of 7.5%, and also 13 years to maturity. What are the prices of these bonds today assuming both bonds have $1000 par value? If the interest rate remains unchanged, what do you expect the price of these bonds to be in one year? In three years? In eight years? In 12 years? In 13 years? What's going on here? Illustrate your answer by graphing the
bond prices versus time to maturity.
Excel would be good. Thanks
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