Bond X is a premium bond making annual payments. The bond has a coupon rate of 9
ID: 2638762 • Letter: B
Question
Bond X is a premium bond making annual payments. The bond has a coupon rate of 9.2 percent, a YTM of 7.2 percent, and has 17 years to maturity. Bond Y is a discount bond making annual payments. This bond has a coupon rate of 7.2 percent, a YTM of 9.2 percent, and also has 17 years to maturity. Assume the interest rates remain unchanged.
What are the prices of these bonds today? (Do not round intermediate calculations. 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. 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. 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. 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. Round your answers to 2 decimal places (e.g., 32.16).)
What do you expect the prices of these bonds to be in 17 years? (Do not round intermediate calculations.)
Bond X is a premium bond making annual payments. The bond has a coupon rate of 9.2 percent, a YTM of 7.2 percent, and has 17 years to maturity. Bond Y is a discount bond making annual payments. This bond has a coupon rate of 7.2 percent, a YTM of 9.2 percent, and also has 17 years to maturity. Assume the interest rates remain unchanged.
Explanation / Answer
Requirement 1:
Bond X:
Bond Y:
Requirement 2: After 1 year number of years left to maturity is 16 years, so
Bond X:
Bond Y:
Similarily for all other requirements,
R3: Bond x = $1,172.83 , Bond Y = $846.03
R4: Bond X = $1,129.20 , Bond Y = $881.09
R5: Bond X = $1,081.57 , Bond Y =$922.61
R6: Bond X = $1,000 , Bond Y = $1,000
YTM, r 7.20% Coupoun Rate (annually) 9.20% Coupoun or interest, C $92.00 Maturity Value, M $1,000.00 Number of years left to Maturity, n 17 Value of bond (P) is equal to the present value of the cash flows expected from it. P = C/(1+r) + C/(1+r)^2 +...+ C/(1+r)^n + M/(1+r)^n P = ?C/(1+r)^n + M/(1+r)^n This can be calculated using excel function "=PV" Type this in excel to get answer "=PV(r,n,C,M,0)" Value of bond (Price) ,P $1,192.59