You are looking at two different bonds:
X Y
Type: premium bond discount bond
Coupon: 9% 7%
YTM: 7% 9%
Maturity 13 years 13 years:
(a) What is the price of each bond today?
(b) If interest rates don’t change, what should the price of these bonds be in 1, 3, 8, 12 and 13 years from now? Assume you are computing the prices right after the coupons are paid.
(c) Given the results you found above, what happens to the price of a bond as it approaches maturity?