Suppose Liaw Company bonds will mature in 15 years. The bonds pay interest semiannually, have a...

Suppose Liaw Company bonds will mature in 15 years. The bonds pay interest semiannually, have a coupon rate of 3.85% and a par value of $1,000. Suppose the yield to maturity for these bonds is 2.25%. Graph the price of the bond as it moves towards maturity. (remember to reverse your x-axis because you move through time, the time to maturity decreases. For example, one year from today, the bond will have 14 years till maturity, two years from today it will have 13 years etc.) What happens to the price of the bond as it gets to maturity?

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Expert Solution

The bond price can be calculated by PV function in excel

The bond price converges towards the par value as the bond maturity comes closer.

jeff jeffy answered 1 year ago

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