Consider the following two bonds. One bond with a coupon rate of 4%, semi-annual coupons,...
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Accounting
Consider the following two bonds. One bond with a coupon rate of 4%, semi-annual coupons, and 10 years until maturity. The second bond has 5 years until maturity but is otherwise the same.
What is the most you should pay for each asset if current yields are 6%?
Do the bonds sell at a premium or a discount?
Suppose current yields increase to 7%, what are the new bond prices?
Which bond is more sensitive to yield changes? Why?
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