Reading 52 LOb Exceptional case of Maturity effect when coupon rate < market discount rate
Example 3 Q1 From Curriculum SS15 Reading 52: Introduction to Fixed Income Valuation , LO (b) - maturity effect ( exceptional case):
Here coupon rate of 0% for both bond A and B, A has maturity of 2 year , but B has 4 years. YTM was 5% for both and will change to 4.9%. Considering Maturity effect which one will be selected ?
It is said in the curriculum than except of maturity effect will not work here. But, both has coupon rate of 0% who it could be more than market discount rate? Here, is YTM is the market discount rate in this case ? It is explained in explanation that no exception to the maturity effect , as no bond are trading at a discount.
Please help me !
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