Miller Corporation has a premium bond making semiannual payments. The bond pays
ID: 2826397 • Letter: M
Question
Miller Corporation has a premium bond making semiannual payments. The bond pays a coupon of 11 percent, has a YTM of 9 percent, and has 17 years to maturity. The Modigliani Company has a discount bond making semiannual payments. This bond pays a coupon of 9 percent, has a YTM of 11 percent, and also has 17 years to maturity. What is the price of each bond today? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Price of Miller Corporation bond Price of Modigliani Company bond If interest rates remain unchanged, what do you expect the prices of these bonds to be 1 year from now? In 6 years? In 11 years? In 15 years? In 17 years? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g32.16.) Miller Corporation Bond Modigliani Company Bond Price of bond 1 year 6 years 1 years 15 years 17 yearsExplanation / Answer
Price of Miller corporation
Using present value function in M S Excel
pv(rate,nper,pmt,fv,type) = rate =9/2 =4.5% nper =17*2 =34 pmt = 1000*11%/2 = 55 fv = 1000 type = 0
PV(4.5%,34,55,1000)
($1,172.47)
Price of Modigliani corporation bond
Using present value function in M S Excel
pv(rate,nper,pmt,fv,type) = rate =11/2 =5.5% nper =17*2 =34 pmt = 1000*9%/2 = 45 fv = 1000 type = 0
PV(5.5%,34,45,1000)
($847.63)
Price of bond
Miller corporation
Year
Using PV function in MS excel
1
pv(rate,nper,pmt,fv,type) = rate =9/2 =4.5% nper =16*2 =32 pmt = 1000*11%/2 = 55 fv = 1000 type = 0
PV(4.5%,32,55,1000)
($1,167.89)
6
pv(rate,nper,pmt,fv,type) = rate =9/2 =4.5% nper =11*2 =22 pmt = 1000*11%/2 = 55 fv = 1000 type = 0
PV(4.5%,22,55,1000)
($1,137.84)
11
pv(rate,nper,pmt,fv,type) = rate =9/2 =4.5% nper =6*2 =12 pmt = 1000*11%/2 = 55 fv = 1000 type = 0
PV(4.5%,12,55,1000)
($1,091.19)
15
pv(rate,nper,pmt,fv,type) = rate =9/2 =4.5% nper =2*2 =4 pmt = 1000*11%/2 = 55 fv = 1000 type = 0
PV(4.5%,4,55,1000)
($1,035.88)
17
pv(rate,nper,pmt,fv,type) = rate =9/2 =4.5% nper =0*2 =0 pmt = 1000*11%/2 = 55 fv = 1000 type = 0
PV(4.5%,0,55,1000)
($1,000.00)
Price of bond
Modigliani corporation
Year
Using PV function in MS excel
1
pv(rate,nper,pmt,fv,type) = rate =11/2 =5.5% nper =16*2 =32 pmt = 1000*9%/2 = 45 fv = 1000 type = 0
PV(5.5%,32,45,1000)
($850.96)
6
pv(rate,nper,pmt,fv,type) = rate =11/2 =5.5% nper =11*2 =22 pmt = 1000*9%/2 = 45 fv = 1000 type = 0
PV(5.5%,22,45,1000)
($874.17)
11
pv(rate,nper,pmt,fv,type) = rate =11/2 =5.5% nper =6*2 =12 pmt = 1000*9%/2 = 45 fv = 1000 type = 0
PV(5.5%,12,45,1000)
($913.81)
15
pv(rate,nper,pmt,fv,type) = rate =11/2 =5.5% nper =2*2 =4 pmt = 1000*9%/2 = 45 fv = 1000 type = 0
PV(5.5%,4,45,1000)
($964.95)
17
pv(rate,nper,pmt,fv,type) = rate =11/2 =5.5% nper =0*2 = 0 pmt = 1000*9%/2 = 45 fv = 1000 type = 0
PV(5.5%,0,45,1000)
($1,000.00)
Price of Miller corporation
Using present value function in M S Excel
pv(rate,nper,pmt,fv,type) = rate =9/2 =4.5% nper =17*2 =34 pmt = 1000*11%/2 = 55 fv = 1000 type = 0
PV(4.5%,34,55,1000)
($1,172.47)
Price of Modigliani corporation bond
Using present value function in M S Excel
pv(rate,nper,pmt,fv,type) = rate =11/2 =5.5% nper =17*2 =34 pmt = 1000*9%/2 = 45 fv = 1000 type = 0
PV(5.5%,34,45,1000)
($847.63)
Price of bond
Miller corporation
Year
Using PV function in MS excel
1
pv(rate,nper,pmt,fv,type) = rate =9/2 =4.5% nper =16*2 =32 pmt = 1000*11%/2 = 55 fv = 1000 type = 0
PV(4.5%,32,55,1000)
($1,167.89)
6
pv(rate,nper,pmt,fv,type) = rate =9/2 =4.5% nper =11*2 =22 pmt = 1000*11%/2 = 55 fv = 1000 type = 0
PV(4.5%,22,55,1000)
($1,137.84)
11
pv(rate,nper,pmt,fv,type) = rate =9/2 =4.5% nper =6*2 =12 pmt = 1000*11%/2 = 55 fv = 1000 type = 0
PV(4.5%,12,55,1000)
($1,091.19)
15
pv(rate,nper,pmt,fv,type) = rate =9/2 =4.5% nper =2*2 =4 pmt = 1000*11%/2 = 55 fv = 1000 type = 0
PV(4.5%,4,55,1000)
($1,035.88)
17
pv(rate,nper,pmt,fv,type) = rate =9/2 =4.5% nper =0*2 =0 pmt = 1000*11%/2 = 55 fv = 1000 type = 0
PV(4.5%,0,55,1000)
($1,000.00)
Price of bond
Modigliani corporation
Year
Using PV function in MS excel
1
pv(rate,nper,pmt,fv,type) = rate =11/2 =5.5% nper =16*2 =32 pmt = 1000*9%/2 = 45 fv = 1000 type = 0
PV(5.5%,32,45,1000)
($850.96)
6
pv(rate,nper,pmt,fv,type) = rate =11/2 =5.5% nper =11*2 =22 pmt = 1000*9%/2 = 45 fv = 1000 type = 0
PV(5.5%,22,45,1000)
($874.17)
11
pv(rate,nper,pmt,fv,type) = rate =11/2 =5.5% nper =6*2 =12 pmt = 1000*9%/2 = 45 fv = 1000 type = 0
PV(5.5%,12,45,1000)
($913.81)
15
pv(rate,nper,pmt,fv,type) = rate =11/2 =5.5% nper =2*2 =4 pmt = 1000*9%/2 = 45 fv = 1000 type = 0
PV(5.5%,4,45,1000)
($964.95)
17
pv(rate,nper,pmt,fv,type) = rate =11/2 =5.5% nper =0*2 = 0 pmt = 1000*9%/2 = 45 fv = 1000 type = 0
PV(5.5%,0,45,1000)
($1,000.00)