Question

2 pts Question 5 The following two bonds (A and B) make semi-annual payments. They are both identical, except for the coupon rate. What is the price of bond B? Note: find bond A's missing yield to maturity (YTM) first, use if for bond B's YTM, then find bond B's price. All variables have to be entered in half-year terms! Do not round you intermediate answers. Bond A Bond B $1,000 $1,000 Face Value Coupon Rate as APR 10% 7% Years to maturity 15 15 $1,200.00 Price ? $881.02 $936.24 $985.54 O $1,096.87 O $960.01

Answer 1

Calculating YTM of Bond A,

Using TVM Calculation,

I = [PV = -1,200, FV = 1,000, PMT = 50, N = 30]

I = 7.73%

Calculating Price of Bond B,

Using TVM Calculation,

PV = [FV = 1,000, PMT = 35, N = 30, I = 0.0773/2]

PV = $936.24

So,

Bond Price = $936.24

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