Answer to Question #111790 in Economics for Ghida

Question

You're looking at two bonds identical in every way except for their coupons and, of course ,their price.
Both have 12 years of maturity . The first bond has a 10% annual coupon rate and sells for $935.08. The second bond has a 12% annual coupon rate . What do you think it would sell for ?

Answer 1

The bond price formula is:

$P = C×\frac{1 - 1/(1 + r)^n}{r} + \frac{M} {(1+r)^n}$

We need to know the maturity value to find the exact price of the second bond, but it will be higher than the price of the first bond.