Bond A and bond B have par values of $1,000. They both have coupon rates of...

Question

Question

Bond A and bond B have par values of $1,000. They both have coupon rates of 10%, and they both pay semi-annual interest. Bond A has 3 years left to maturity and bond B has 14 years left to maturity.

business finance

Answer 1

Answer #1

1 Required Return value of Bond A Value of Bond B 5% 1137.70 1499.12 1000.00 1000.00 15% 882.65 710.67 10% w

C B 1 Required Return value of Bond A Value of Bond B 2 0.05 =PV(A2/2,2*3,-10%*1000/2,-1000) =PV(A2/2,2*14,-10%*1000/2,-1000)

Bond B is more sensitive to change in required return because of higher maturity and sensitivity increases with maturity

Answer 2

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