The value of your bond will increase.
Because interest rates and bond prices have an inverse
relationship. The current market interest of this bond has already fall to 4%, investor could earn 4% profit and no more 7%. Obviously, the number of buyer would be more than seller. The value of bond will increase.
15. Bond Price Movements. Bond X is a premium bond making annual payments. The bond pars an 8 percent coupon, has a YTM of 6 percent, and has 13 years to maturity. Bond Y is a discount bond making annual payments. This bond pays a 6 percent coupon, has a YTM of 8 percent, and also has 13 years to maturity. What are the prices of these bonds today? If interest rates remain unchanged, what do you expect the prices of these bonds to be in one year? In three years? In eight years? In 12 years? In 13 years? What’s going on here? Illustrate your answers by graphing bond prices versus time to maturity.
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