Zero-coupon corporate bond and municipal green bond

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Reference no: EM131999399

a. What are the prices of two bonds, each with face value of $1000: a 10-year zero-coupon corporate bond trading at 200 basis points over Treasuries, and a municipal green bond with a 3% coupon trading at 50 basis points over Treasuries. (Assume coupons are paid semi-annually for both bonds.)

b. If interest rates on 5-year Treasuries rise over the next 5 years to 4.0%, and the spreads stay the same, what would the prices of the two bonds be in 5 years?

c. Which bond is more volatile?

Reference no: EM131999399

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