Bond X is a premium bond making annual payments. The bond pays an 9.3 percent co
ID: 2684180 • Letter: B
Question
Bond X is a premium bond making annual payments. The bond pays an 9.3 percent coupon, has a YTM of 7.3 percent, and has 18 years to maturity. Bond Y is a discount bond making annual payments. This bond pays a 7.3 percent coupon, has a YTM of 9.3 percent, and also has 18 years to maturity. Assume the interest rates remain unchanged.Requirement 1:
What are the prices of these bonds today? (Do not include the dollar signs ($). Enter rounded answers as directed, but do not use the rounded numbers in intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)
Prices
Bond X $
Bond Y $
Requirement 2:
What do you expect the prices of these bonds to be in one year? (Do not include the dollar signs ($). Enter rounded answers as directed, but do not use the rounded numbers in intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)
Prices
Bond X $
Bond Y $
Requirement 3:
What do you expect the prices of these bonds to be in three years? (Do not include the dollar signs ($). Enter rounded answers as directed, but do not use the rounded numbers in intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)
Prices
Bond X $
Bond Y $
Requirement 4:
What do you expect the prices of these bonds to be in eight years? (Do not include the dollar signs ($). Enter rounded answers as directed, but do not use the rounded numbers in intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)
Prices
Bond X $
Bond Y $
Requirement 5:
What do you expect the prices of these bonds to be in 12 years? (Do not include the dollar signs ($). Enter rounded answers as directed, but do not use the rounded numbers in intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)
Prices
Bond X $
Bond Y $
Requirement 6:
What do you expect the prices of these bonds to be in 18 years? (Do not include the dollar signs ($). Enter rounded answers as directed, but do not use the rounded numbers in intermediate calculations.)
Prices
Bond X $
Bond Y $
Explanation / Answer
Assume Face Value = 100 Requirement 1: prices of bonds today X= 9.3PVIFA(7.3%,18)+100PVIF(7.3%,18)= $119.69 Y= 7.3PVIFA(9.3%,18)+100PVIF(9.3%,18)= $82.834 2) Price of these bonds in 1 years(maturity now becomes 17 years) X=9.3PVIFA(7.3%,17)+100PVIF(7.3%,17)= $119.127 Y=7.3PVIFA(9.3%,17)+100PVIF(9.3%,17)= $83.237 3) Price of these bonds in 3 years(maturity now becomes 15 years) X=9.3PVIFA(7.3%,15)+100PVIF(7.3%,15)= $117.876 Y=7.3PVIFA(9.3%,15)+100PVIF(9.3%,15)= $84.16 (4) Price of these bonds in 8 years(maturity now becomes 10 years) X=9.3PVIFA(7.3%,10)+100PVIF(7.3%,10)= $113.854 Y=7.3PVIFA(9.3%,10)+100PVIF(9.3%,10)= $87.332 (5) Price of these bonds in 12 year(maturity now becomes 6 years) X=9.3PVIFA(7.3%,6)+100PVIF(7.3%,6)= $109.445 Y=7.3PVIFA(9.3%,6)+100PVIF(9.3%,6)= $91.108 (6) Price of these bonds in 18 year(maturity now becomes 0) X=face value + coupon = 100 +9.3= 109.3 Y= face value + coupon = 100 +7.3= 107.3