Question

An investor has two bonds in their portfolio l, Bond C and Bond Z. Each bond matured in 4 years, has a face value of $1000, and has a yield to maturity of 9.6%. Bond C pays a 10% annual coupon, while Bond Z is a zero coupon bond.

A. Assuming that the yield to maturity of each bond remains at 9.6% over the next 4 years, calculate the price of the bonds at each of the following years to maturity.

4.

3.

2.

1.

0.

B. Plot the time path or prices for each bond.

Answer 1