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Price of bonds at different time periods

3. You own 2 bonds, A & B. Each bond matures in 4 years, has a par value of $1000, and YTM of 10%. Bond A pays an 8% annual coupon; bond B is a zero coupon bond. Assume the market rate for these bonds stays at 10% over the next 4 years.

A. Use PV tables to calculate the price of each bond at the following time periods (complete the table below):

PRICE
t BOND A BOND B
0
1
2
3
4

Note:Show all calculations using PV tables.

B. What explains the wide differences in bond prices?

Solution Summary

The solution calculates the price of two bonds at different time periods.

$2.19