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Briefly explain how two securities that have the same yield to maturity can have different asked prices

Briefly explain how two securities that have the same yield to maturity can have different asked prices

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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[Related to the Apply the Concept: "How to Follow the Bond Market: Reading the Bond Tables ] Consider the following information on two U.S. Treasury bonds Maturity July 31, 2024 Coupon 1.625 July 31, 2024 2.000 Briefly explain how two securities that have the same yield to maturity can have different asked prices OA. Bond A has a low coupon rate and a lower price. Bond B has a higher coupon rate and a higher price. Because of the bond price formula, if coupon rates rise, the yield will fall, which requires prices to fall to keep the yield the same. If both bonds have the same risk profile, the law of one price brings bond yields to the same level Bond A Bond B Bid 101.8984 103.4141 Asked 101.9141 103.4297 Chg 0:5000 0.5000 Asked yield 1.151 1.151 OB. Bond A has a low coupon rate and a lower price. Bond B has a higher coupon rate and a higher price, Because of the bond price formula, if coupon rates fall, the yield will rise, which requires prices to rise to keep the yield the same. If both bonds have the same risk profile, the law of one price brings bond yields to the same level OC. Bond A has a low coupon rate and a lower price. Bond B has a higher coupon rate and a higher price. Because of the bond price formula, if coupon rates fall, the yield will fall, which requires prices to fall to keep the yield the same. If both bonds have the same risk profile, the law of one price brings bond yields to the same level OD. Bond A has a low coupon rate and a lower price Bond B has a higher coupon rate and a higher price. Because of the bond price formula, if coupon rates fall, the yield will fall, which requires prices to fall to keep the yield the same. If the two bonds have different risk profiles, the law of one price brings bond yields to the same level
Transcribed Image Text:[Related to the Apply the Concept: "How to Follow the Bond Market: Reading the Bond Tables ] Consider the following information on two U.S. Treasury bonds Maturity July 31, 2024 Coupon 1.625 July 31, 2024 2.000 Briefly explain how two securities that have the same yield to maturity can have different asked prices OA. Bond A has a low coupon rate and a lower price. Bond B has a higher coupon rate and a higher price. Because of the bond price formula, if coupon rates rise, the yield will fall, which requires prices to fall to keep the yield the same. If both bonds have the same risk profile, the law of one price brings bond yields to the same level Bond A Bond B Bid 101.8984 103.4141 Asked 101.9141 103.4297 Chg 0:5000 0.5000 Asked yield 1.151 1.151 OB. Bond A has a low coupon rate and a lower price. Bond B has a higher coupon rate and a higher price, Because of the bond price formula, if coupon rates fall, the yield will rise, which requires prices to rise to keep the yield the same. If both bonds have the same risk profile, the law of one price brings bond yields to the same level OC. Bond A has a low coupon rate and a lower price. Bond B has a higher coupon rate and a higher price. Because of the bond price formula, if coupon rates fall, the yield will fall, which requires prices to fall to keep the yield the same. If both bonds have the same risk profile, the law of one price brings bond yields to the same level OD. Bond A has a low coupon rate and a lower price Bond B has a higher coupon rate and a higher price. Because of the bond price formula, if coupon rates fall, the yield will fall, which requires prices to fall to keep the yield the same. If the two bonds have different risk profiles, the law of one price brings bond yields to the same level
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