1. The concept of compound interest refers to:
a) earning interest only on the original investment
b) payment of interest on previously paid interest
c) investing for a multi-year period of time
d) changing interest rates during an investment period.
2. Bond A: 10% coupon, 10-year term, $1000 face value
Bond B: 10% coupon, 50-year term, $1000 face value
1) Both bonds trade at $1000. Calculate the YTM for Bond A and Bond B.
2) Both bonds trades at $1200. Calculate the YTM for Bond A and Bond B.
3) Both bonds trade at $800. Calculate the YTM for Bond A and Bond B.
4) Tell me what happens to percentage change in price for the bonds:
a. When prices increases.
b. When price decreases.