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Bond A is a 12-year 7% annual coupon bond. Bond B is a 12-year 9% annual coupon bond. Bond C is a 12-year 11% annual coupon bond. Each of these three bonds has a yield to maturity (YTM) of 9%. Assume the market rate of interest does not change over time.
Specify the bond that sells at premium, sells at discount, and sells at par.
What is value of each bond at this moment (t=0)?
What would be the price of each bond 2 years from now?
Is the total return earned on Bond A the same as the total return earned on Bond C? Explain.
If the capital gains yield (CGY) earned on Bond A greater than the CGY on Bond C? Explain.
Is the interest yield (IY) on Bond A for year 2 greater than the IY on Bond C? Explain.
Beatrice invests $1,410 in an account that pays 3 percent simple interest. How much more could she have earned over a 4-year period if the interest had compounded annually?
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