Bond coupon rate maturity current price

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Assume it is 1 January 2017. An investor has researched two possible bond investments, but an intermittent printer fault has caused some important information to be missing from the printout. The latest coupon on each bond has just been paid. Each bond has a face, or par, value of £1000. The investor assumes that each bond pays coupons annually.

Bond Coupon rate Maturity Current price Yield to maturity ABC 6.50% 31 December 2022 ? 5.50% XYZ 4.45% 31 December 2024 £838.45

As an investor and based on the results of the current price which is 1049.99 $ and the yield to maturity which is 7.04 % ( after calculation )

1) Which coupon option would you choose and why?

2) Assume for ABC corporation only, market interest rate increases, which results in increase YTM to 6.50%. What will be the revised current price of the Bond? What will you deduce about the relationship between market interest rate and bond prices?

Reference no: EM132564812

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