Bond Jekyll is a premium bond making semiannual payments. The bond pays a 10 per
ID: 2705650 • Letter: B
Question
Bond Jekyll is a premium bond making semiannual payments. The bond pays a 10 percent coupon, has a YTM of 8 percent, and has 14 years to maturity. Bond Hyde is a discount bond making semiannual payments. This bond pays a 8 percent coupon, has a YTM of 10 percent, and also has 14 years to maturity.
What is the price of each bond today? (Round your answers to 2 decimal places. (e.g., 32.16))
If interest rates remain unchanged, what do you expect the price of these bonds to be one year from now? In four years? In nine years? In 13 years? In 14 years? (Round your answers to 2 decimal places. (e.g., 32.16))
Bond Jekyll is a premium bond making semiannual payments. The bond pays a 10 percent coupon, has a YTM of 8 percent, and has 14 years to maturity. Bond Hyde is a discount bond making semiannual payments. This bond pays a 8 percent coupon, has a YTM of 10 percent, and also has 14 years to maturity.
Explanation / Answer
Price of bond Jekyll= 50PVIFA(4%,28)+1000PVIF(4%,28)= $1166.63
Price of bond Hyde= 40PVIFA(5%,28)+1000PVIF(5%,28)= $851.019 or $851.02
Price of bond Jekyll
One year= $ 1159.83
Four years= $ 1135.90
Nine years= $1081.10
13 years= $ $1018.86
14 years= $1000
Price of bond Hyde
One year= $856.25
Four years= $875.38
Nine years= $922.78
13 years= $981.41
14 years= $1000