2. Consider two bonds; both bonds have the same par value and the exact same cou

Question

2. Consider two bonds; both bonds have the same par value and the exact same coupon payments remaining. Then the bond with the higher price will have: A) Lower yield to maturity B) Same yield to maturity C) Higher yield to maturity D)A higher return E) None of the above 3. Consider a bond with ten years to maturity, eight-percent coupon rate, $1000 par value and 9-percent yield to maturity. Suppose an annual coupon has just been paid, calculate the bond price. A) $1067.10 B) $1005.46 C $1000 D) $975.23 E) $935.82 4. Consider the bond in the previous question. Calculate the expected coupon yield over the next year if the yield to maturity remains unchanged at 9-percent. A) 9-percent B) 8.5-percent C) 8-percent D) 1-percent E) Zero

Explanation / Answer

2.) Lower Price bond with similar number of coupon payments remaining and similar par value as that of Higher price bond will have higher Yield to Maturity. This is because the yield is estimated based on the current price of the bond.

Hence, Option-a is the right answer.

3.) Time to Maturity =10 years

Coupon Rate = 8%

Yield to Maturity =9%

Par Value =$1000

Bond Price = 80x{(1-(1+0.09)-10)/0.09} + 1000/(1+0.09)10

                 = 80 x 6.4177 + 422.41

   = 513.41 + 422.41

   = 935.82

Hence, Option-e is the right answer

4.) If Yield to Maturity remains same at 9%, the expected coupon yield =9%

Hence, Option-a is the right answer

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