An investor has two bonds in her portfolio, Bond C and Bond Z. Each bond matures

Question

An investor has two bonds in her portfolio, Bond C and Bond Z. Each bond matures in 4 years, has a face value of $1,000, and has a yield to maturity of 8.7%. Bond C pays a 12% annual coupon, while Bond Z is a zero coupon bond.

Assuming that the yield to maturity of each bond remains at 8.7% over the next 4 years, calculate the price of the bonds at each of the following years to maturity. Round your answer to the nearest cent.

Years to Maturity Price of Bond C Price of Bond Z 4 $   $   3 $   $   2 $   $   1 $   $   0 $   $  

Explanation / Answer

Answer: calculation of price of bond :

Years to Maturity Price of Bond C Price of Bond Z 4 802.256[(120+1000)*0.7163 716.3[1000*0.7163) 3 93.43[(120*0.778594] 0 2 101.5598[120*0.846332] 0 1 110.395[120*0.9199] 0 0 0 0

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