Consider a bond B1 which matures in 30 years and a bond B2 which matures in 15 years. Both have a facevalue $100 and semi annunal coupon pmt 7%(2). Draw the price yield curves for B1 and B2 on the same yield-price plane with yield on the horizontal axis, marking the price intercept for both curves. If the two curves intersect, find the YTM at that point. For the horizontal axis use YTM.
Using the formula: F/(1+i)^n + Fr*[(1-(1+i)^-30)/i]
I found the Price of B1 to be 100 and the price of B2 to be 100.
I am not sure if I did that properly.
Now, I don't know how to graph these two. Could someone please help me with how I should draw the lines?
Take B1 as an example, if the annualised yield is $y$, then the present price is $$P_{B1}(y) = $100\times(1+y/2)^{-60} + \frac{$100\times7\%/2}{y/2}\times\left[1-(1+y/2)^{-60}\right]$$
Similarly for B2. Here price is given as a function of yield, hence you should be able to plot those on a $P-y$ plane and find the $P$-intercept when $y$ is small.