Solution-Purchasing treasury bonds

Purchasing treasury bonds

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Reference no: EM131214030

An investor was considering purchasing Treasury bonds. Five-year bonds had a 3% yield and 2-year bonds had 2% yield. The investor chose the 5-year bond at a par price for a 3% yield. Subsequently, even though market interest rates remained constant, the investor's bonds kept increasing in price over the next three years. When there was 2 years left to maturity, why was the price of the bond above par?

Reference no: EM131214030

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Purchasing treasury bonds

Reference no: EM131214030

Reference no: EM131214030

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