Bond values (where two bonds have identical maturity time)
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Create an example where two bonds have identical maturity time. The difference is their coupon rates. Then, for the following year, decrease the ongoing market rate by 1 or 2 or 3 percent, and calculate the change in the price of both bonds. Which one provides the largest positive change? Why?
Please illustrate your answer on a graph for changing bond prices when interest rate changes for two bonds. (Bond prices on the Y-axis and interest rates on the X-axis)
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Solution Summary
This solution shows detailed calculation of the value of two bonds that have identical maturity time. A graph is also included to illustrate the difference in the bond's value. A step-by-step instruction of how to draw graph of data that consists of x and y values is also included.
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