Bond P is a premium bond with an 7.4 percent coupon, a YTM of 6.15 percent, and
ID: 2762808 • Letter: B
Question
Bond P is a premium bond with an 7.4 percent coupon, a YTM of 6.15 percent, and 15 years to maturity. Bond D is a discount bond with an 7.4 percent coupon, a YTM of 9.15 percent, and also 15 years to maturity. If interest rates remain unchanged, what do you expect the price of these bonds to be 1 year from now? In 5 years? In 10 years? In 14 years? In 15 years? (Input all amounts as positive values. Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the "$" sign in your response.)Explanation / Answer
Bond P:
Coupon =7.4%*1000=74
YTM=6.15%
time=15 years
Price of bond:
P = C(PVIFA,r,t) + $1,000(PVIF,R,t)
PVIFA=1-(1+r)^-n]/R
1 year:
r=6.15% t=14
p=1115.12
5 year:
r=6.15% t=10
p=550.55
10 year:
r=6.15% t=5
p=741.99
14 year:
r=6.15% t=1
p=942.06
0 year:
r=6.15% t=15
p=1000
FOr bond D:
coupon=74 YTM=9.15% t=15
1 year:
r=9.15% t=14
p=864.88
5 year:
r=9.15% t=10
p=416.64
10 year:
r=9.15% t=5
p=645.48
14 year:
r=9.15% t=1
p=916.17
0 year:
r=9.15% t=15
p=1000