Question

Bond P is a premium bond with a coupon of 8.8 percent , a YTM of 7.55 percent, and 15 years to maturity. Bond D is a discount bond with a coupon of 8.8 percent, a YTM of 10.55 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?

Answer 1

А 1 B Bond P $1,000 8.80% 7.55% 15 C Bond D $1,000 8.80% 10.55% 15 Years to Maturity 2 Par Value 3 Coupon Rate 4 YTM 5 Years to Maturity 6 7 Price in 8 1 Year 9 5 Years 10 10 Years 11 14 Years 12 15 Years 13 14 Bond P $1,105.80 $1,085.61 $1,050.51 $1,011.62 $1,000.00 Bond D $874.86 $894.96 $934.58 $984.17 $1,000.00

Bond P Bond D 1 2 Par Value 3 Coupon Rate 4 YTM 5 Years to Maturity 1000 0.088 0.0755 15 1000 0.088 0.1055 15 7 Price in 8 1 Year 9 5 Years 10 10 Years 11 14 Years 12 15 Years 13 Bond P Bond D Years to Maturity =-PV(B$4,$D8,B$3*B$2,B$2) --PV(C$4,$D8,C$3*C$2,C$2) =B5-1 =-PV(B$4,$D9,B$3*B$2,B$2) E-PV(C$4,$D9,C$3*C$2,C$2) =B5-5 --PV(B$4,$D10,B$3*B$2,B$2) --PV(C$4,$D10,C$3*C$2,c$2) =B5-10 =-PV(B$4,$D11,B$3*B$2,B$2) --PV(C$4,$D11,C$3* C$2,C$2) =B5-14 =-PV(B$4,$D12,B$3*B$2,B$2) E-PV(C$4,$D12,C$3*C$2,C$2) =B5-15 14