Calculate the market price of bond

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You are considering investing in three bonds with varying terms and yields to maturity. Each bond has a coupon of 6%, a par value of £100 and the next interest payment is due in one year:

Maturity Yield to maturity TM

2 years 6.5%

5 years 7.0%

10 years 7.6%

The present value of a £1 annuity over five years discounted at 7% is 4.1002; the present value of a £1 annuity over ten years discounted at 7.6% is 6.8328.

Calculate the market price of each bond. Which bond should be the most sensitive to general changes in bond yields and why?

Reference no: EM133077966

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