BOND VALUATION An investor has two bonds in her portfolio, Bond C and Bond Z. Ea
ID: 1172564 • Letter: B
Question
BOND VALUATION
An investor has two bonds in her portfolio, Bond C and Bond Z. Each bond matures in 4 years, has a face value of $1,000, and has a yield to maturity of 9.2%. Bond C pays a 12% annual coupon, while Bond Z is a zero coupon bond.
Assuming that the yield to maturity of each bond remains at 9.2% over the next 4 years, calculate the price of the bonds at each of the following years to maturity. Round your answer to the nearest cent.
Years to Maturity Price of Bond C Price of Bond Z 4 $ $ 3 2 1 0Explanation / Answer
Years to maturity Price of bond C Price of bond Z 4 $ 1,090.32 $ 703.25 =PV(9.2%,4,120,1000)*-1 =PV(9.2%,4,,1000)*-1 3 $ 1,070.62 $ 767.95 =PV(9.2%,3,120,1000)*-1 =PV(9.2%,3,,1000)*-1 2 $ 1,049.12 $ 838.60 =PV(9.2%,2,120,1000)*-1 =PV(9.2%,2,,1000)*-1 1 $ 1,025.64 $ 915.75 =PV(9.2%,1,120,1000)*-1 =PV(9.2%,1,,1000)*-1 0 $ 1,000.00 $ 1,000.00 =PV(9.2%,0,120,1000)*-1 =PV(9.2%,0,,1000)*-1
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