Question

Miller Corporation has a premium bond making semiannual payments. The bond pays a coupon of 12 percent, has a YTM of 10 percent, and has 12 years to maturity. The Modigliani Company has a discount bond making semiannual payments. This bond pays a coupon of 10 percent, has a YTM of 12 percent, and also has 12 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 A EA If interest rates remain unchanged, what do you expect the prices of these bonds to be 1 year from now? In 3 years? In 8 years? In 10 years? In 12 years? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Miller Corporation Bond Modigliani Company Bond A A Price of bond 1 year 3 years 8 years 10 years 12 years EA EA EA EA EA A A A

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Miller Corporation $1,000.00 12% Modigliani company $1,000.00 10% Face of Bond Coupon rate Coupon frequency YTM Years to maturity Current Price of Bond 10% 12% 12 12 $1,137.99 $874.50 Year Price of Bond Miller Corporation Bond Modigliani Company Bond $1,131.63 $879.58 $1,116.90 $891.72 $1,064.63 $937.90 $1,035.46 $965.35 $1,000.00 $1,000.00 10 12 17 18 19

Cell reference -

в Modigliani company 1000 0.1 Face of Bond Coupon rate Coupon frequency YTM Years to maturity Current Price of Bond Miller Corporation 1000 0.12 2 0.1 12 =PV(C6/2,c7*2,-C4/2*C3,-C3,0) 0.12 12 =PV(D6/2,D7*2,-D4/2*D3,-D3,0) Year Price of Bond Miller Corporation Bond Modigliani Company Bond =PV($C$6/2,($C$7-B12)*2,-$C$4/2*$C$3,-$C$3,0) =PV($D$6/2,($D$7-B12)*2,-$D$4/2*$D$3,-$D$3,0) =PV($C$6/2,($C$7-B13)* 2,-$C$4/2*$C$3,-$C$3,0) =PV($D$6/2,($D$7-B13)*2,-$D$4/2*$D$3,-$D$3,0) =PV($C$6/2,($C$7-B14)*2,-$C$4/2*$C$3,-$C$3,0) =PV($D$6/2,($D$7-B14)*2,-$D$4/2*$D$3,-$D$3,0) =PV($C$6/2,($C$7-B15)* 2,-$C$4/2*$C$3,-$C$3,0) =PV($D$6/2,($D$7-B15)*2,-$D$4/2*$D$3,-$D$3,0) =PV($C$6/2,($C$7-B16)* 2,-$C$4/2*$C$3,-$C$3,0) =PV($D$6/2,($D$7-B16)* 2,-$D$4/2*$D$3,-$D$3,0) 10

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