A bond investor is analyzing the following annual coupon bon

A bond investor is analyzing the following annual coupon bonds: Issuing Company Annual Coupon Rate Irwin Enterprises Johnson Incorporated Smith Metalworks 6% 12% 9% Each bond has 10 years until maturity and has the same risk. Their yield to maturity (YTM) is 9%. Interest rates are assumed to remain constant over the next 10 years. Label the curves on the following graph to indicate the path that each bond\'s price, or value, is expected to follow. BOND VALUE I$ 1200 1100 1000 900 800 700 600 10 8642 YEARS TO MATURITY

Solution

Irwin just registered and issued its bonds, which will be sold in the bond market for the first time. Irwin’s bonds would be referred to as a new issue

Based on the preceding information, which of the following statements are true?

Check all that apply:

All of the bonds will have the same value when they reach maturity.

A bond’s expected total return is its YTM (9%). These three bonds have the same YTM, so they have the same expected total return; however, each bond has a different coupon interest rate, so they have different values until the maturity date. Once the bonds mature, they will have made all of their coupon payments, so they will all be exactly worth their par value of $1,000.