1. Price each bond and explain how the number of years to maturity and the coupon rate affect the current price of bonds. Assume a YTM of 7%.
1. A 4-year bond with a 9% annual coupon
2. A 4-year bond with a zero coupon
3. A 15-year bond with a 9% annual coupon
4. A 15-year bond with a zero coupon
2. What lesson can be learned from the 2008 market decline?
1. Stocks and bonds react similarly in downward markets.
2. Diversification lowers risk.
3. Market declines cause high inflation rates.
4. Global markets all react exactly the same.
5. Equity risk premiums will decline in the future.