Ask Question
BusinessBusiness
13 February, 18:40

Bond X is a premium bond making semiannual payments. The bond has a coupon rate of 9.3 percent, a YTM of 7.3 percent, and has 18 years to maturity. Bond Y is a discount bond making semiannual payments. This bond has a coupon rate of 7.3 percent, a YTM of 9.3 percent, and also has 18 years to maturity. Assume the interest rates remain unchanged and both bonds have a par value of $1,00

What are the prices of these bonds today?

+1
Answers (1)
  1. 13 February, 20:26
    0
    The figure for the par value of bond is wrong. The correct figure is $1000. The complete question is,

    Bond X is a premium bond making semiannual payments. The bond has a coupon rate of 9.3 percent, a YTM of 7.3 percent, and has 18 years to maturity. Bond Y is a discount bond making semiannual payments. This bond has a coupon rate of 7.3 percent, a YTM of 9.3 percent, and also has 18 years to maturity. Assume the interest rates remain unchanged and both bonds have a par value of $1,000.

    What are the prices of these bonds today?

    Answer:

    a)

    The current price of Bond X is $1198.60

    b)

    The current price of Bond Y is $826.82

    Explanation:

    The bond's price is calculated as the sum of the present value of the annuity of interest payments by the bond and the present value of the face value of the bond that will be received at maturity. The discount rate used to calculate the present values is the market interest rate or YTM.

    As both the bonds are semiannual bonds, we will use the semi annual coupon payment, the semi annual percentage of YTM and the number of semi annual periods outstanding.

    For Bond X

    Semi annual coupon payment = 1000 * 0.093 * 6/12 = $46.5

    Number of semiannual periods till maturity = 18 * 2 = 36 periods

    Semi annual YTM rate = 7.3% / 2 = 3.65%

    Price of bond = 46.5 * [ (1 - (1+0.0365) ^-36) / 0.0365 ] + 1000 / (1+0.0365) ^36

    Price of bond = $1198.6002 rounded off to $1198.60

    For Bond Y

    Semi annual coupon payment = 1000 * 0.073 * 6/12 = $36.5

    Number of semiannual periods till maturity = 18 * 2 = 36 periods

    Semi annual YTM rate = 9.3% / 2 = 4.65%

    Price of bond = 36.5 * [ (1 - (1+0.0465) ^-36) / 0.0465 ] + 1000 / (1+0.0465) ^36

    Price of bond = $826.819 rounded off to $826.82
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “Bond X is a premium bond making semiannual payments. The bond has a coupon rate of 9.3 percent, a YTM of 7.3 percent, and has 18 years to ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers
You Might be Interested in
1. How is real GDP different from GDP? A. Real GDP takes inflation into account. B. GDP takes inflation into account. C. Real GDP uses utility rather than dollars as a unit of measurement. D. GDP only uses dollars as a measurement.
Answers (1)
The most efficient combination of resources in producing a given output is the combination that: a) comes closest to using the same quantities of land, labor, capital, and entrepreneurial ability. b) minimize the cost per unit of output.
Answers (1)
Strong corporations that expand to the extent that they greatly reduce competition are called: partnerships big 4 monopolies stock companies
Answers (1)
Which of the following statements is true? a. The cost of goods sold budget is prepared before the direct labor and overhead budgets. b. Service firms need not prepare a master budget. c.
Answers (1)
Define accounting in your worlds
Answers (1)
New Questions in Business
Which education and qualifications are especially useful for Food Products and Processing Systems careers? Check all that apply.
Answers (1)
Marks Corporation's balance sheet appears below: Comparative Balance Sheet Ending Balance Beginning Balance Assets: Cash and cash equivalents $ 47 $ 37 Accounts receivable 53 57 Inventory 63 60 Property, plant, and equipment 548 440 Less accumulated
Answers (1)
What happens to prices and wages during an expansion?
Answers (1)
Suppose that the equilibrium price of greeting cards declined at the same time the equilibrium quantity of greeting cards increased. Which one of the following would most likely be responsible? a.
Answers (1)
You plan to borrow $ 2 comma 000 from a bank. In exchange for $ 2 comma 000 today, you promise to pay $ 2 comma 100 in one year. What does the cash flow timeline look like from your perspective? What does it look like from the bank's perspective?
Answers (1)
Home » Business » Bond X is a premium bond making semiannual payments. The bond has a coupon rate of 9.3 percent, a YTM of 7.3 percent, and has 18 years to maturity. Bond Y is a discount bond making semiannual payments. This bond has a coupon rate of 7.
Sign Up Forgot Password?