A Firm has two bond issues outstanding. Both bonds pay $100 annual interest plus $1,000 at...
A Firm has two bond issues outstanding. Both bonds pay $100 annual interest plus $1,000 at maturity. Bond L has a maturity of 15 years, and Bond S has a maturity of 1 year. The current market interest rate is 5%. What is the difference between the prices of the two bonds?
Homework Answers
Prices of the two bonds can be calculated as per the equations below:
So the difference between the prices of the two bonds is 1518.98-1047.62 = 471.36
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