Question

Problem 7-18 Bond Price Movements [LO2] Bond X is a premium bond making semiannual payments. The bond pays a coupon rate of 10 percent, has a YTM of 8 percent, and has 14 years to maturity. Bond Y is a discount bond making semiannual payments. This bond pays a coupon rate of 8 percent, has a YTM of 10 percent, and also has 14 years to maturity. The bonds have a $1,000 par value. What is the price of each bond today? If interest rates remain unchanged, what do you expect the price of these bonds to be one year from now? In four years? In nine years? In 13 years? In 14 years? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Answer is complete but not entirely correct. Price of bond Bond X Bond Y Today $ 1,105.63 $ 901.01% In one year $ 1,159.83 $ 856.25 In four years $ 1,135.90 $ 922.79% In nine years $ 1,044.52 $ 956.71 % In 13 years $ 1,009.62 $ 990.48 In 14 years $ 1,000 $ 1,000

Answer 1

PMT = fv x coupon rate/2 FV = face value rate = YTM/2 NPER (number of payments) price = pv -PV(rate,nper,pmt,fv) $1,166.63 $851.02 pirce today Bond X Bond Y 1000 1000 4.00% 5.00% pirce in one year Bond X Bond Y 1000 1000 4.00% 5.00% $1,159.83 $856.25 pirce in 4 years Bond X Bond Y I so 1000 1000 1000 4.00% 5.00% $1,135.90 $875.38 pirce in 9 years Bond X Bond y 1000 1000 4.00% 5.00% $1,081.11 $922.78 pirce in 13 years Bond X Bond Y 1000 1000 100 4.00% 5.00% $1,018.86 $981.41 pirce in 17 years Bond X Bond y 1000 1000 4.00% 5.00% $1,000.00 $1,000.00