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Riding the yield curve

Assume the yield curve is upward sloping and does not change over time. The investment horizon is one year. Bond A is a intermediate term bond (let’s say 5 years bond). Bond B is a long term bond (10 years maybe). Bond C is a short term bond (2 years). Which bond has the strongest price appreciation after one year horizon and why?

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Without knowing each bond’s coupon rate, and the 1-year, 2-year, 4-year, 5-year, 9-year, and 10-year YTMs, you cannot say.

Simplify the complicated side; don't complify the simplicated side.

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The higher the coupon, the larger price appreciation, right?

How about they are all zero coupon bonds?

lizihengtotti wrote:
The higher the coupon, the larger price appreciation, right?

Um … nope.

lizihengtotti wrote:
How about they are all zero coupon bonds?

Rather than asking us, you should work this out on your own.

Create a yield curve in Excel.  Use the PRICE (or PV) built-in function to calculate the price for various bonds today and one year from today.

Seriously, you’ll learn a lot more by doing this on your own than by asking us.  Besides, it’s fun.  Trust me on this.

Simplify the complicated side; don't complify the simplicated side.

Financial Exam Help 123: The place to get help for the CFA® exams
http://financialexamhelp123.com/

Will do, thanks.

You’re welcome.

Please come back and let us know what you’ve learned.

Simplify the complicated side; don't complify the simplicated side.

Financial Exam Help 123: The place to get help for the CFA® exams
http://financialexamhelp123.com/