Consider a 3-year risk-free bond, which pays annual coupons. The coupon rate is 3.5% and...
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Consider a 3-year risk-free bond, which pays annual coupons. The coupon rate is 3.5% and the face value is 500. The bond is issued at time t=0, pays coupons at time t=1,2,3 and face value at time t=3. You purchase the bond at time t=0. While holding the bond, you do not reinvest the coupon payments. YTM = 3.25% when bond was sold at t= 0.
Assuming the yield to maturity remains constant at 3.25% plot what will happen to the (clean) price of the bond over time. Calculate the clean price.
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