Bond X is a premium bond making annual payments. The bond has a coupon rate of 8

Question

Bond X is a premium bond making annual payments. The bond has a coupon rate of 8.9 percent, a YTM of 6.9 percent, and has 14 years to maturity. Bond Y is a discount bond making annual payments. This bond has a coupon rate of 6.9 percent, a YTM of 8.9 percent, and also has 14 years to maturity. Assume the interest rates remain unchanged. What are the prices of these bonds today? What do you expect the prices of these bonds to be in three years? What do you expect the prices of these bonds to be in eight years? What do you expect the prices of these bonds to be in 12 years What do you expect the prices of these bonds to be in 14 years?

Explanation / Answer

Bond X Interest * Present value annuity factor(6.9%, 14 years) + Maturity value * Present value factor(6.9%, 14 years) (8.9 * 8.79815) + (100 * 0.3929) 117.5963122 Bond Y Interest * Present value annuity factor(8.9%, 14 years) + Maturity value * Present value factor(8.9%, 14 years) (6.9 * 7.830151) + (100 * 0.30311) 84.33969829

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