FINANCE
7-6 Bond Valuation: An investor has two bonds in her portfolio, Bond C and Bond Z. Each bond matures in 4 years, has a face value of 1,000, and has a yield to maturity of 9.6%. Bond C pays a 10% annual coupon, while Bond Z is a zero coupon bond.
a. Assuming that the yield to maturity of each bond remains at 9.6% over the next 4 years, calculate the price of the bonds at each of the following years to maturity.
Years to Maturity Price of Bond C Price of Bond Z
4 ____________ ____________
3 ____________ ____________
2 ____________ ____________
1 ____________ ____________
0 ____________ ____________
b. Plot the time path of prices for each bond
Click here for the SOLUTION
