Bond X is a premium bond making annual payments. The bond has a coupon rate of 9
ID: 2811640 • Letter: B
Question
Bond X is a premium bond making annual payments. The bond has a coupon rate of 9 percent, a YTM of 7 percent, and has 13 years to maturity. Bond Y is a discount bond making annual payments. This bond has a coupon rate of 7 percent, a YTM of 9 percent, and also has 13 years to maturity. Assume the interest rates remain unchanged. Requirement 1 What are the prices of these bonds today? (Do not round 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 round intermediate calculations. Round places (e.g., 32.16).) your answers to 2 decimal Prices Bond X Bond Y Requirement 3: What do you expect the prices of these bonds to be in three years? (Do not round intermediate calculations. Round places (e.g., 32.16).) your answers to 2 decimal Prices Bond X Bond Y Requirement 4: What do you expect the prices of these bonds to be in eight years? (Do not round 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 round intermediate calculations. Round places (e.g., 32.16).) your answers to 2 decimal Prices Bond X Bond Y Requirement 6: What do you expect the prices of these bonds to be in 13 years? (Do not round intermediate calculations. Round places (e.g., 32.16).) your answers to 2 decimal Prices Bond X Bond YExplanation / Answer
Bond X Bond Y Coupon Rate 9% 7% YTM 7% 9% Yrs to Maturity 13 13 Future Value $1,000 $1,000 Coupon Amount $90 $70 Value of Bond = Present Value of Coupon Payments + Present Value of future proceeds Requirement 1 Years Cash flow Bond X Discount Factor @ 7% Bond X Cash flow Bond Y Discount Factor @ 9% Bond Y 1 90 0.9346 84.11214953 70 0.9174 64.22018 2 90 0.8734 78.60948554 70 0.8417 58.9176 3 90 0.8163 73.46680892 70 0.7722 54.05284 4 90 0.7629 68.66056908 70 0.7084 49.58976 5 90 0.7130 64.16875615 70 0.6499 45.4952 6 90 0.6663 59.97080014 70 0.5963 41.73871 7 90 0.6227 56.04747677 70 0.5470 38.2924 8 90 0.5820 52.38081941 70 0.5019 35.13064 9 90 0.5439 48.95403683 70 0.4604 32.22994 10 90 0.5083 45.75143629 70 0.4224 29.56876 11 90 0.4751 42.75835167 70 0.3875 27.1273 12 90 0.4440 39.96107633 70 0.3555 24.88743 13 1090 0.4150 452.3112482 1070 0.3262 349.0112 1167.15 850.26 Bond X $1,167.15 Bond Y $850.26 Requirement 2 Years Cash flow Bond X Discount Factor @ 7% Bond X Cash flow Bond Y Discount Factor @ 9% Bond Y 1 90 0.9346 84.11214953 70 0.9174 64.22018 2 90 0.8734 78.60948554 70 0.8417 58.9176 3 90 0.8163 73.46680892 70 0.7722 54.05284 4 90 0.7629 68.66056908 70 0.7084 49.58976 5 90 0.7130 64.16875615 70 0.6499 45.4952 6 90 0.6663 59.97080014 70 0.5963 41.73871 7 90 0.6227 56.04747677 70 0.5470 38.2924 8 90 0.5820 52.38081941 70 0.5019 35.13064 9 90 0.5439 48.95403683 70 0.4604 32.22994 10 90 0.5083 45.75143629 70 0.4224 29.56876 11 90 0.4751 42.75835167 70 0.3875 27.1273 12 1090 0.4440 483.9730356 1070 0.3555 380.4222 1158.85 856.79 Bond X $1,158.85 Bond Y $856.79 Requirement 3 Years Cash flow Bond X Discount Factor @ 7% Bond X Cash flow Bond Y Discount Factor @ 9% Bond Y 1 90 0.9346 84.11214953 70 0.9174 64.22018 2 90 0.8734 78.60948554 70 0.8417 58.9176 3 90 0.8163 73.46680892 70 0.7722 54.05284 4 90 0.7629 68.66056908 70 0.7084 49.58976 5 90 0.7130 64.16875615 70 0.6499 45.4952 6 90 0.6663 59.97080014 70 0.5963 41.73871 7 90 0.6227 56.04747677 70 0.5470 38.2924 8 90 0.5820 52.38081941 70 0.5019 35.13064 9 90 0.5439 48.95403683 70 0.4604 32.22994 10 1090 0.5083 554.1007284 1070 0.4224 451.9796 1140.47 871.65 Bond X $1,140.47 Bond Y $871.65 Requirement 4 Years Cash flow Bond X Discount Factor @ 7% Bond X Cash flow Bond Y Discount Factor @ 9% Bond Y 1 90 0.9346 84.11214953 70 0.9174 64.22018 2 90 0.8734 78.60948554 70 0.8417 58.9176 5 3 90 0.8163 73.46680892 70 0.7722 54.05284 4 90 0.7629 68.66056908 70 0.7084 49.58976 5 1090 0.7130 777.1549356 1070 0.6499 695.4266 1082.00 922.21 Bond X $1,082.00 Bond Y $922.21 Requirement 5 Years Cash flow Bond X Discount Factor @ 7% Bond X Cash flow Bond Y Discount Factor @ 9% Bond Y 1 1090 0.9346 1018.691589 1070 0.9174 981.6514 1018.69 981.65 Bond X $1,018.69 Bond Y $981.65 Requirement 6 Years Cash flow Bond X Discount Factor @ 7% Bond X Cash flow Bond Y Discount Factor @ 9% Bond Y 0 1000 1.0000 1000 1000 1.0000 1000 1000.00 1000.00 Bond X $1,000.00 Bond Y $1,000.00