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24 Jul 2019
Assume that Bond A and Bond B are identical in every way except for the coupon rate (i.e., both bonds have the same par value, maturity, and yield to maturity or required rate of return). Bond A has a 12% coupon rate and Bond B is a zero coupon bond. Both bonds have a yield to maturity of 8% per year. If interest rates increase so that the yield on both issues increases to 10%, what would happen to the price of the bonds?
Assume that Bond A and Bond B are identical in every way except for the coupon rate (i.e., both bonds have the same par value, maturity, and yield to maturity or required rate of return). Bond A has a 12% coupon rate and Bond B is a zero coupon bond. Both bonds have a yield to maturity of 8% per year. If interest rates increase so that the yield on both issues increases to 10%, what would happen to the price of the bonds?
Tod ThielLv2
26 Jul 2019
Related questions
Masters Corp. issues two bonds with 18-year maturities. Both bonds are callable at $1,060. The first bond is issued at a deep discount with a coupon rate of 8% to yield 14.9%. The second bond is issued at par value with a coupon rate of 16.50%.
a. What is the yield to maturity of the par bond? (Round your answer to 2 decimal places.)
Yield to maturity %
b. If you expect rates to fall substantially in the next two years, which bond would you prefer to hold?
| Bond with a coupon rate 16.50% | |
| Bond with a coupon rate 8% |
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