*Show work* There are 2 bonds in the market. Bond A has 15 years till maturity...
*Show work*
There are 2 bonds in the market. Bond A has 15 years till maturity and Bond B has 5 years till maturity. Both bonds pay 8% coupon rate and both bonds have yield-to-maturity of 8%. If the yield-to-maturity decreases to 5%, answer the following questions.
(1) Will the bond prices increase or decrease?
(2) Which bond's price will change more?
Homework Answers
1.
Bond Price will increase as YTM falls
Change in Bond Price = -Mod.D(Change in YTM)
2.
Bond A's price will change more as it has longer maturity so it's modified duration will be higher and so change in price of bond will be higher.
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