Will the yield of bond be higher or lower than that of bond

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Reference no: EM132058683

Bond A and B's coupon rates are 3% and 20% respectively, paid semi-annually. They both have 5 years to maturity and par value $100. Both bonds are issued by the same government. Currently, the zero coupon rates are:

0.5-year: 5%

1-year: 6%

1.5-year: 7%

2-year: 8%

2.5-year: 9%

3-year: 10%

3.5-year: 11%

4-year: 12%

4.5-year: 13%

5-year: 14%

The price of Bond A is $63.43. The yield of Bond A is 13.23%.

a) Can we use the yield of Bond A to compute the price of Bond B? If not, why not?

b) Will the yield of Bond B be higher or lower than that of Bond A? Compute the price and yield of Bond B.

Reference no: EM132058683

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