Question

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 8.2%.
Bond C pays an 11.5% annual coupon, while Bond Z is a zero coupon bond.
a. Assuming that the yield to maturity of each bond remains at 8.2% over the next 4
years, calculate the price of the bonds at each of the following years to maturity:

b. Plot the time path of prices for each bond.

Years to Maturity
Price of Bond c
Price of Bond Z
4
2
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Transcribed Image Text

Years to Maturity Price of Bond c Price of Bond Z 4 2