Bond X is a premium bond making semiannual payments. The bond has a coupon rate
ID: 2619447 • Letter: B
Question
Bond X is a premium bond making semiannual payments. The bond has a coupon rate of 8.9 percent, a YTM of 6.9 percent, and has 14 years to maturity. Bond Y is a discount bond making semiannual payments. This bond has a coupon rate of 6.9 percent, a YTM of 8.9 percent, and also has 14 years to maturity. Assume the interest rates remain unchanged and both bonds have a par value of $1,000.
What are the prices of these bonds today? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
What do you expect the prices of these bonds to be in one year? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
What do you expect the prices of these bonds to be in three years? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
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.)
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.)
Price Bond X $ Bond Y $Explanation / Answer
Solution:
Today
Bond X
$1,177.72
Bond Y
$841.69
1-year
Bond X
$1,169.85
Bond Y
$847.73
3-year
Bond X
$1,152.42
Bond Y
$861.51
8-year
Bond X
$1,096.92
Bond Y
$908.55
12-year
Bond X
$1,036.77
Bond Y
$964.08
Working:
Bond X
Using financial calculator BA II Plus - Input details:
Today
1-year
3-year
8-year
12-year
I/Y = Rate or yield / 2 =
3.45
3.45
3.45
3.45
3.45
PMT = Payment = Coupon / 2 x FV =
-$44.50
-$44.50
-$44.50
-$44.50
-$44.50
N = Total number of remaining periods =
28
26
22
12
4
FV = Future Value =
-$1,000.00
-$1,000.00
-$1,000.00
-$1,000.00
-$1,000.00
CPT > PV = Bond Value =
$1,177.72
$1,169.85
$1,152.42
$1,096.92
$1,036.77
Bond Y
Using financial calculator BA II Plus - Input details:
Today
1-year
3-year
8-year
12-year
I/Y = Rate or yield / 2 =
4.45
4.45
4.45
4.45
4.45
PMT = Payment = Coupon / 2 x FV =
-$34.50
-$34.50
-$34.50
-$34.50
-$34.50
N = Total number of remaining periods =
28
26
22
12
4
FV = Future Value =
-$1,000.00
-$1,000.00
-$1,000.00
-$1,000.00
-$1,000.00
CPT > PV = Bond Value =
$841.69
$847.73
$861.51
$908.55
$964.08
Today
Bond X
$1,177.72
Bond Y
$841.69
1-year
Bond X
$1,169.85
Bond Y
$847.73
3-year
Bond X
$1,152.42
Bond Y
$861.51
8-year
Bond X
$1,096.92
Bond Y
$908.55
12-year
Bond X
$1,036.77
Bond Y
$964.08