Bond X is a premium bond making annual payments. The bond pays an 8 percent coup
ID: 2680677 • Letter: B
Question
Bond X is a premium bond making annual payments. The bond pays an 8 percent coupon, has a YTM of 6 percent, and has 13 years to maturity. Bond Y is a discount bond making annual payments. This bond pays a 6 percent coupon, has a YTM of 8 percent, and also has 13 years to maturity. If interest rates remain unchanged, you would expect that one year from now,(a) Bonds X and Y will be priced at $? and $?, respectively.
(b)In three years, they will be priced at $? and $? .
(c)In eight years: $? and $? .
(d)In 12 years: $? and $.?
(e)And in 13 years: $? and $? .
round to two decimal place
Explanation / Answer
a) price of bond X= 8 PVIFA(6%,13)+1000PVIF(6%,13)=$539.62 Price of bond Y= 6PVIFA(8%,13)+1000PVIF(8%,13)=$415.1228 (b)In three years, they will be priced at price of bond X=539.62FVIF(6%,3)= 642.687 Price of bond Y=415.1228FVIF(8%,3)=522.93 (c)In eight years price of bond X=539.62FVIF(6%,8)= 860.046 Price of bond Y=415.1228FVIF(8%,8)=768.35 (d)In 12 years price of bond X=539.62FVIF(6%,12)= 1085.82 Price of bond Y=415.1228FVIF(8%,12)=1045.36 (e)And in 13 years price of bond X=539.62FVIF(6%,13)= 1154.355 Price of bond Y=415.1228FVIF(8%,13)=1128.967