Bond P is a premium bond with an 6.4 percent coupon, a YTM of 5.15 percent, and
ID: 2767791 • Letter: B
Question
Bond P is a premium bond with an 6.4 percent coupon, a YTM of 5.15 percent, and 15 years to maturity. Bond D is a discount bond with an 6.4 percent coupon, a YTM of 8.15 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.)
Bond P Bond D 1 Year $ $ 5 Years $ $ 10 Years $ $ 14 Years $ $ 15 Years $ $Explanation / Answer
Answer
It is assumed that face value and redemption value of bond is $ 100
Bond P
Figures in $
Year
Interest
Redemption value
Cash flow
Disc Rate : 5.15%
Present value
A
B
C
D
A+B
C*D
1
6.4
6.4
0.95
6.09
2
6.4
6.4
0.90
5.79
3
6.4
6.4
0.86
5.50
4
6.4
6.4
0.82
5.24
5
6.4
6.4
0.78
4.98
6
6.4
6.4
0.74
4.74
7
6.4
6.4
0.70
4.50
8
6.4
6.4
0.67
4.28
9
6.4
6.4
0.64
4.07
10
6.4
6.4
0.61
3.87
11
6.4
6.4
0.58
3.68
12
6.4
6.4
0.55
3.50
13
6.4
6.4
0.52
3.33
14
6.4
100
106.4
0.50
52.68
Present value (Year 1 from now)
112.26
Figures in $
Year
Interest
Redemption value
Cash flow
Disc Rate : 5.15%
Present value
A
B
C
D
A+B
C*D
1
6.4
6.4
0.95
6.09
2
6.4
6.4
0.90
5.79
3
6.4
6.4
0.86
5.50
4
6.4
6.4
0.82
5.24
5
6.4
6.4
0.78
4.98
6
6.4
6.4
0.74
4.74
7
6.4
6.4
0.70
4.50
8
6.4
6.4
0.67
4.28
9
6.4
6.4
0.64
4.07
10
6.4
100
106.4
0.61
64.39
Present value (5 years from now)
109.58
Figures in $
Year
Interest
Redemption value
Cash flow
Disc Rate : 5.15%
Present value
A
B
C
D
A+B
C*D
1
6.4
6.4
0.95
6.09
2
6.4
6.4
0.90
5.79
3
6.4
6.4
0.86
5.50
4
6.4
6.4
0.82
5.24
5
6.4
100
106.4
0.78
82.77
Present value (10 years from now)
105.39
Figure in $
Year
Interest
Redemption value
Cash flow
Disc Rate : 5.15%
Present value
A
B
C
D
A+B
C*D
1
6.4
100
106.4
0.95
101.19
Present value (14 years from now)
101.19
Bond value at end of 15 years will be equal to redemption value = $ 100
Bond D
Figures in $
Year
Interest
Redemption value
Cash flow
Disc Rate : 8.15%
Present value
A
B
C
D
A+B
C*D
1
6.4
6.4
0.92
5.92
2
6.4
6.4
0.85
5.47
3
6.4
6.4
0.79
5.06
4
6.4
6.4
0.73
4.68
5
6.4
6.4
0.68
4.33
6
6.4
6.4
0.62
4.00
7
6.4
6.4
0.58
3.70
8
6.4
6.4
0.53
3.42
9
6.4
6.4
0.49
3.16
10
6.4
6.4
0.46
2.92
11
6.4
6.4
0.42
2.70
12
6.4
6.4
0.39
2.50
13
6.4
6.4
0.36
2.31
14
6.4
100
106.4
0.33
35.53
Present value (Year 1 from now)
85.70
Figures in $
Year
Interest
Redemption value
Cash flow
Disc Rate : 8.15%
Present value
A
B
C
D
A+B
C*D
1
6.4
6.4
0.92
5.92
2
6.4
6.4
0.85
5.47
3
6.4
6.4
0.79
5.06
4
6.4
6.4
0.73
4.68
5
6.4
6.4
0.68
4.33
6
6.4
6.4
0.62
4.00
7
6.4
6.4
0.58
3.70
8
6.4
6.4
0.53
3.42
9
6.4
6.4
0.49
3.16
10
6.4
100
106.4
0.46
48.60
Present value (5 years from now)
88.34
Figures in $
Year
Interest
Redemption value
Cash flow
Disc Rate : 8.15%
Present value
A
B
C
D
A+B
C*D
1
6.4
6.4
0.92
5.92
2
6.4
6.4
0.85
5.47
3
6.4
6.4
0.79
5.06
4
6.4
6.4
0.73
4.68
5
6.4
100
106.4
0.68
71.91
Present value (10 years from now)
93.04
Figures in $
Year
Interest
Redemption value
Cash flow
Disc Rate : 8.15%
Present value
A
B
C
D
A+B
C*D
1
6.4
100
106.4
0.92
98.38
Present value ( 14 years from now)
98.38
Bond value at end of 15 years will be equal to redemption value = $ 100
Figures in $
Year
Interest
Redemption value
Cash flow
Disc Rate : 5.15%
Present value
A
B
C
D
A+B
C*D
1
6.4
6.4
0.95
6.09
2
6.4
6.4
0.90
5.79
3
6.4
6.4
0.86
5.50
4
6.4
6.4
0.82
5.24
5
6.4
6.4
0.78
4.98
6
6.4
6.4
0.74
4.74
7
6.4
6.4
0.70
4.50
8
6.4
6.4
0.67
4.28
9
6.4
6.4
0.64
4.07
10
6.4
6.4
0.61
3.87
11
6.4
6.4
0.58
3.68
12
6.4
6.4
0.55
3.50
13
6.4
6.4
0.52
3.33
14
6.4
100
106.4
0.50
52.68
Present value (Year 1 from now)
112.26