Bond X is a premium bond making semiannual payments. The bond has a rate of 7.5 percent, a YTM of 6 percent, and 13 years to maturity. Bond Y is a discount bond making semiannual payments. This bond has a rate of 6 percent, a YTM of 7.5 percent, and also 13 years to maturity. What are the prices of these bonds today assuming both bonds have a $1,000 par value? If interest rates remain unchanged, what do you expect the prices of these bonds to be in 1 year? In 3 years? In 8 years? In 12 years? In 13 years? What’s going on here?
