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a) Find the prices of bonds A and B.
b) Sketch out the cash flows of the bonds in a table.
c) Create a data table that shows how the bond prices vary with the interest rate (use 0 to 10%, by 50 basis points).
d) Plot your data table. What do you notice about the shape of the bonds on the plot?
COMPARING TWO BONDS \begin{tabular}{|r|l|r|r|r|r|} \hline & Bond A & Bond B & Market interest rate & 3.1% \\ \hline & Coupon rate & 10% & 10% & \\ \hline Maturity & 10 & 20 & \\ \hline & Face value & 1,000.00 & 1,000.00 & \\ \hline Part a & Price & & & & \\ \hline \end{tabular} Part b: Cash Flows of Bonds Part c: Data Table - bond prices vs interest rate Part d: Plot Price of bonds (A \& B) vs.interest rates Bond A Bond B Yield Bond A Bond B \begin{tabular}{|c} 1 \\ 2 \\ 3 \\ \hline \\ \hline 5 \\ 6 \\ 7 \\ \hline 8 \\ \hline 9 \\ \hline 10 \\ \hline 11 \\ \hline 12 \\ \hline 13 \\ \hline 14 \\ \hline 15 \\ \hline 16 \\ \hline 17 \\ \hline 18 \\ \hline 19 \\ \hline 20 \end{tabular} 0.0% COMPARING TWO BONDS \begin{tabular}{|r|l|r|r|r|r|} \hline & Bond A & Bond B & Market interest rate & 3.1% \\ \hline & Coupon rate & 10% & 10% & \\ \hline Maturity & 10 & 20 & \\ \hline & Face value & 1,000.00 & 1,000.00 & \\ \hline Part a & Price & & & & \\ \hline \end{tabular} Part b: Cash Flows of Bonds Part c: Data Table - bond prices vs interest rate Part d: Plot Price of bonds (A \& B) vs.interest rates Bond A Bond B Yield Bond A Bond B \begin{tabular}{|c} 1 \\ 2 \\ 3 \\ \hline \\ \hline 5 \\ 6 \\ 7 \\ \hline 8 \\ \hline 9 \\ \hline 10 \\ \hline 11 \\ \hline 12 \\ \hline 13 \\ \hline 14 \\ \hline 15 \\ \hline 16 \\ \hline 17 \\ \hline 18 \\ \hline 19 \\ \hline 20 \end{tabular} 0.0%
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