Two bonds have been recommended to you, Bond X and Bond Y, both with par value of $1,000 and 3 years before maturity. Bond X pays 8% annual coupon, and Bond Y pays 12% semiannual coupon. The two bonds are considered to have the same level of risk, and therefore the same Yield to Maturity (YTM), which is 10% as an effective annual rate (1.e. EFF%).

a) Without calculation, explain the value of which bond is more sensitive to changes in the market interest rate.

b) Calculate the current price of each of the two bonds. (Hint: for bond Y, the coupon rate given is a nominal rate, whereas the YTM given is an effective rate)
"Looking for a Similar Assignment? Get Expert Help at an Amazing Discount!"

Save your time - order a paper!

Get your paper written from scratch within the tight deadline. Our service is a reliable solution to all your troubles. Place an order on any task and we will take care of it. You won’t have to worry about the quality and deadlines

Order Paper Now