Bond A has a 9% annual coupon while Bond B has a 6% annual coupon. Both bonds have a 7% yield to maturity, and the YTM is expected to remain constant. Which of the following statements is CORRECT? a. The prices of both bonds will remain unchanged. b. The price of Bond A will decrease over time, but the price of Bond B will increase over time. c. The prices of both bonds will increase by 7% per year. d. The prices of both bonds will increase over time, but the price of Bond A will increase by more. e. The price of Bond B will decrease over time, but the price of Bond A will increase over time.
Bond A has a 9% annual coupon while Bond B has a 6% annual coupon. Both bonds have a 7% yield to maturity, and the YTM is expected to remain constant.
Which of the following statements is CORRECT?
a. The prices of both bonds will remain unchanged.
b. The price of Bond A will decrease over time, but the price of Bond B will increase over time.
c. The prices of both bonds will increase by 7% per year.
d. The prices of both bonds will increase over time, but the price of Bond A will increase by more.
e. The price of Bond B will decrease over time, but the price of Bond A will increase over time.
Please explain and show work in excel
Basic Details:
1. Bond A Annual Coupon = 9%
2. Bond B Annual Coupon = 6%
3. Yield to maturity on Both Bonds = 7%
4. Price, Coupon rate and YTM relationship:
a. When Coupon rate is less than YTM then the price of Bond will be less than Face value and the price of bond will increase over time
b. When Coupon rate is more than YTM then the price of Bond will be higher than Face value and the price of bond will decrease over time
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
