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Bond Valuation
An investor has two bonds in her portfolio, Bond C and Bond Z. Each bond matures in 4 years, has a face value of $1,000, and has a yield to maturity of 8.2%. Bond C pays an 11.5% annual coupon, while Bond Z is a zero coupon bond.
a. Assuming that the yield to maturity of each bond remains at 8.2% over the next 4 years, calculate the price of the bonds at each of the following years to maturity:
Years to Maturity 4 3 2 1 0
Price of Bond C 4___________ 3___________ 2___________ 1___________ 0___________
Price of Bond Z 4___________ 3___________ 2___________ 1___________ 0___________
b. Plot the time path of prices for each bond.
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