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Calculate the expected prices of each bond in eight years

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Peter Au is studying two bonds. Blue Bond is a premium bond making semiannual payments. The bond pays a coupon rate of 7.4%, has a yield to maturity (YTM) of 6.8%, and has 13 years to maturity. Red Bond is a discount bond making semiannual payments. This bond pays a coupon rate of 6.8%, has a YTM of 7.4%, and also has 13 years to maturity.

Question 1: Calculate the price of each bond today.

Question 2: Assume interest rates remain unchanged and calculate the expected prices of each bond in eight years and in 13 years.

Question 3: Describe and explain the changes in bond prices with the years to maturity.

Question 4: Peter found that a US Treasury callable bond is priced at 100.125, paying a coupon rate of 9.125%, but has a -2.15% YTM. Explain how this is possible.

Reference no: EM132573362

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