Question

Consider the following bonds with annual coupons, compounding annually, knowing that the current market rate for all new bonds (irrespective of time-to-maturity) is 3.8%.

Bond Name	Coupon Rate	Time to Maturity
A	3.8%	2
B	4.8%	2

What is the price difference between bond A and bond B per 1,000 of par? (i.e. answer the result of taking the price of A minus the price of B).

Answer 1

Price difference is $ 18.92

Price of Bond A	=-pv(rate,nper,pmt,fv)
	= $ 1,000.00
Where,
rate	=	Discount rate		=	3.80%
nper	=	Time			=	2
pmt	=	Coupon Payment	=	1000*3.8%	=	$       38.00
fv	=	Face Value			=	$ 1,000.00
Price of Bond B	=-pv(rate,nper,pmt,fv)
	= $ 1,018.92
Where,
rate	=	Discount rate		=	3.80%
nper	=	Time			=	2
pmt	=	Coupon Payment	=	1000*4.8%	=	$       48.00
fv	=	Face Value			=	$ 1,000.00
Price difference	=	Price of A	-	Price of B
	=	$ 1,000.00	-	$ 1,018.92
	=	$     -18.92