We have two $1,000 bonds in a portfolio. Bond 1 has a maturity of 10 years,...

We have two $1,000 bonds in a portfolio.

Bond 1 has a maturity of 10 years, coupon rate of 7%, semiannual interest
Bond 2 has a maturity of 8 years and a coupon rate of 11%, semiannual interest
Assume that bond yields of all maturities (ytm) are 6%

a. what are the prices(value) of the bonds

b. If bond yields drop to 5%, what will happen to the bond prices

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Expert Solution

jeff jeffy answered 1 year ago

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