Question

Bond X is a premium bond making semiannual payments. The bond has a coupon rate of 9.4 percent, a YTM of 7.4 percent, and has 19 years to maturity. Bond Y is a discount bond making semiannual payments. This bond has a coupon rate of 7.4 percent, a YTM of 9.4 percent, and also has 19 years to maturity. Assume the interest rates remain unchanged and both bonds have a par value of $1,000. a. What are the prices of these bonds today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What do you expect the prices of these bonds to be in one year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What do you expect the prices of these bonds to be in three years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) d. What do you expect the prices of these bonds to be in eight years? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g.,32.16.) e. What do you expect the prices of these bonds to be in 12 years? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) f. What do you expect the prices of these bonds to be in 19 years? (Do not round intermediate calculations.) Bond X Bond Y a. Price today b. Price in one year c. Price in three years d. Price in eight years e. Price in 12 years f. Price in 19 years

Answer 1

Bonds Requirement a Bond X Price YTM $1,202.32 PV(3.7%,38,47,1000) 3.70% 7.4% x 0.5 38 19 x 2 1000 47 1000 x 9.4% x 0.5 FV PMT Bond Y Price YTM $824.38 PV(4.7%,38,37,1000) 4.70% 9.4%/2 38 19 x 2 1000 37 1000 x 7.4% x 0.5 FV PMT Requirement b Price of Bond X in one Year Price of Bond Y in one Year Price YTM $1,197.20 PV(3.7%,36,47,1000) Price 3.70% 7.4% x 0.5 YTM 36 18 x 2 1000 FV 47 1000 x 9.4% x 0.5 PMT $827.96 PV (4.7%,36,37,1000) 4.70% 9.4%/2 38 18 x 2 1000 37 1000 x 7.4% x 0.5 FV PMT Requirement Price of Bond X in 3 Year Price of Bond Y in 3 Year Price YTM $1,185.77 PV(3.7%,32,47,1000) Price 3.70% 7.4% x 0.5 YTM 32 16 x 2 1000 FV 47 1000 x 9.4% x 0.5 PMT $836.17 PV(4.7%,32,37,1000) 4.70% 9.4%/2 38 16 x 2 1000 37 1000 x 7.4% x 0.5 FV PMT

Requirement d Price of Bond X in 8 Year Price of Bond Y in 8 Year Price YTM $1,148.75 PV(3.7%,22,47,1000) Price 3.70% 7.4% x 0.5 YTM 22 11 x 2 1000 FV 47 1000 x 9.4% x 0.5 PMT $864.69 PV (4.7%,22,37,1000) 4.70% 9.4%/2 22 11 x 2 1000 37 1000 x 7.4% x 0.5 FV PMT Requiremente Price of Bond X in 12 Year Price of Bond Y in 12 Year Price YTM $1,107.75 PV(3.7%,14,47,1000) Price 3.70% 7.4% x 0.5 YTM 14 ( 19 - 12 ) x2 1000 47 1000 x 9.4% x 0.5 PMT $899.09 PV(4.7%,14,37,1000) 4.70% 9.4%/2 14 ( 19 - 12) x 2 1000 37 1000 x 7.4% x 0.5 FV FV PMT Requirement f Price of Bond X in 19 Year Price of Bond Y in 19 Year Price YTM Price YTM $1,000.00 PV(3.7%,0,47,1000) 3.70% 7.4% x 0.5 0 ( 19 - 19) x 2 1000 47 1000 x 9.4% x 0.5 $1,000.00 PV(4.7%,0,37,1000) 4.70% 9.4%/2 0 ( 19 - 19) x 2 1000 37 1000 x 7.4% x 0.5 FV PMT FV PMT