Question

Bond X is a premium bond making semi annual payments. The bond has a coupon rate of 8.8 percent, a YTM of 6.8 percent, and has 13 years to maturity. Bond Y is a discount bond making semi annual payments. This bond has a coupon rate of 6.8 percent, a YTM of 8.8 percent, and also has 13 years to maturity. Assume the interest rates remain unchanged and both bonds have a par value of $1000. What is the price in 12 years?

Answer 1

Calculating Price of Bond X in 12 years,

Using TVM Calculation,

PV = [FV = 1,000, T = 2, PMT = 44, I = 0.068/2]

PV = $1,019.02

Calculating Price of Bond Y in 12 years,

Using TVM Calculation,

PV = [FV = 1,000, T = 2, PMT = 34, I = 0.088/2]

PV = $981.25