Bond X is a premium bond making annual payments. The bond has a coupon rate of 9
ID: 2626867 • Letter: B
Question
Bond X is a premium bond making annual 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 annual 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.
What are the prices of these bonds today?
What do you expect the prices of these bonds to be in one year?
What do you expect the prices of these bonds to be in three years?
What do you expect the prices of these bonds to be in eight years?
What do you expect the prices of these bonds to be in 12 years?
What do you expect the prices of these bonds to be in 19 years?
Bond X is a premium bond making annual 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 annual 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.
Explanation / Answer
What are the prices of these bonds today?
Bond X => $1,200.65 (($94 x A.P.V.F. 7.4% for 19 years) + ($1000 / 1.07419)
Bond Y => $825.83 (($74 x A.P.V.F. 9.4% for 19 years) + ($1000 / 1.09419)
What do you expect the prices of these bonds to be in one year?
Bond X => $1,195.50 (($94 x A.P.V.F. 7.4% for 18 years) + ($1000 / 1.07418)
Bond Y => $829.46 (($74 x A.P.V.F. 9.4% for 18 years) + ($1000 / 1.09418)
What do you expect the prices of these bonds to be in three years?
Bond X => $1,184.03 (($94 x A.P.V.F. 7.4% for 16 years) + ($1000 / 1.07416)
Bond Y => $837.77 (($74 x A.P.V.F. 9.4% for 16 years) + ($1000 / 1.09416)
What do you expect the prices of these bonds to be in eight years?
Bond X => $1,147.03 (($94 x A.P.V.F. 7.4% for 11 years) + ($1000 / 1.07411)
Bond Y => $866.43 (($74 x A.P.V.F. 9.4% for 11 years) + ($1000 / 1.09411)
What do you expect the prices of these bonds to be in 12 years?
Bond X => $1,106.30 (($94 x A.P.V.F. 7.4% for 7 years) + ($1000 / 1.0747)
Bond Y => $900.68 (($74 x A.P.V.F. 9.4% for 7 years) + ($1000 / 1.0947)
What do you expect the prices of these bonds to be in 19 years?
Bond X => $1,000 (($94 x A.P.V.F. 7.4% for 0 years) + ($1000 / 1.0740)
Bond Y => $1,000 (($74 x A.P.V.F. 9.4% for 0 years) + ($1000 / 1.0940)