Milani Corporation has a premium bond making semiannual payments. The bond pays

Question

Milani Corporation has a premium bond making semiannual payments. The bond pays a coupon of 12 percent has a YTM of 10 percent, and has 12 years to                    maturity. The Cooper Company has a discount bond making semiannual payments. This bond pays a coupon of 10 percent, has a YTM of 12 percent, and also has                    12 years to maturity.                

                    a. What is the price of each bond today?                

                    b. If interest rates remain unchanged, what do you expect the price of these bonds to be 1 year from now?                

In 3 years? In 8 years? In 10 years? In 12 yearsn here

Explanation / Answer

(a)

P= 60PVIFA(5%,24)+1000PVIF(5%,24)= $ 1137.986

P= 50PVIFA(6%,24)+1000PVIF(6%,24)= $ 874.49

(B)

1 years from now

P= 60PVIFA(5%,22)+1000PVIF(5%,22)= $ 1131.63

P= 50PVIFA(6%,22)+1000PVIF(6%,22)= $ 879.584

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