In: Finance
Please explain in detail and not through excel, so i understand each step
2. Calculate and plot the price of a security with the following characteristics at current market interest rates of 4%, 8% and 12%: Coupon equals 8%, maturity equals five years, face value equals $1,000. (Place price on the vertical (Y) axis and the current yield on the horizontal (X) axis.) Without doing the calculations, would the curve for a ten-year security be steeper or flatter than the one you have plotted? Why? What about a one-year security? Why?
Price of bond at each level of interest rate for five year maturity is calculated in excel and screen shot provided below:
Price of bond at each level of interest rate for ten year maturity is calculated in excel and screen shot provided below:
Graph of 10 year maturity bond is more steeper than 5 year maturity bond.