Suppose two bonds (Bond P and Bond D) were issued five years ago when the interest rate was 9%. The coupon rate (annual payment) for Bond P and D were 9% and 5%, respectively. Now, with five years left in the bond's life, the interest rate drops to 7% per year. Show how bond price has been changed over time. If you are considering buying one of these bonds, which bond should be chosen and why?© BrainMass Inc. brainmass.com June 3, 2020, 10:41 pm ad1c9bdddf
This solution calculates price of bonds and the effect of a change in interest rate on the price of the bonds.