Answered

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Bond X is a premium bond making semiannual payments. The bond pays a coupon rate of 6.8 percent, has a YTM of 6.2 percent, and has 13 years to maturity. Bond Y is a discount bond making semiannual payments. This bond pays a coupon rate of 6.2 percent, has a YTM of 6.8 percent, and also has 13 years to maturity. The bonds have a par value of $1,000. What is the price of each bond today

Sagot :

Answer:

Bond X $1,053.02

Bond Y  $948.76

Explanation:

The bond price is the present value of all future cash flows(all semiannual coupons and face value) discounted at the semiannual yield to maturity since coupons are expected semiannually.

Using a financial calculator bearing in mind that the calculator would be set to its default end mode before making the following inputs:

Bond X:

N=26(semiannual coupons in 13 years=13*2=26)

PMT=34(seminnual coupon=$1000*6.8%/2=$34)

I/Y=3.10(semiannual yield to maturity=6.2%/=3.10%)

FV=1000(the face value is $1000)

CPT

PV=$1,053.02  

Bond Y:

N=26(semiannual coupons in 13 years=13*2=26)

PMT=31(seminnual coupon=$1000*6.2%/2=$31)

I/Y=3.40(semiannual yield to maturity=6.8%/=3.40%)

FV=1000(the face value is $1000)

CPT

PV=$948.76  

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