Answer:
<h2><u>Bond X</u></h2>
current market price:
PV of face value = $1,000 / (1 + 3.5%)²⁶ = $
PV of coupon payments = $45 x 16.89035 (PV annuity factor, 3.5%, 26 periods) = $760.07
current market price = $408.84 + $760.07 = $1,168.91
price in 1 year:
PV of face value = $1,000 / (1 + 3.5%)²⁴ = $437.96
PV of coupon payments = $45 x 16.05837 (PV annuity factor, 3.5%, 24 periods) = $722.63
market price = $437.96 + $722.63 = $1,160.59
price in 3 years:
PV of face value = $1,000 / (1 + 3.5%)²⁰ = $502.57
PV of coupon payments = $45 x 14.2124 (PV annuity factor, 3.5%, 20 periods) = $639.56
market price = $502.57+ $639.56 = $1,142.13
price in 8 years:
PV of face value = $1,000 / (1 + 3.5%)¹⁰ = $708.92
PV of coupon payments = $45 x 8.31661 (PV annuity factor, 3.5%, 10 periods) = $374.25
market price = $708.92 + $374.25 = $1,083.17
price in 12 years:
PV of face value = $1,000 / (1 + 3.5%)² = $933.51
PV of coupon payments = $45 x 1.89969 (PV annuity factor, 3.5%, 2 periods) = $85.49
market price = $933.51 + $85.49 = $1,019
price in 13 years:
market price = $1,000 + $45 = $1,045
<h2><u>Bond Y</u></h2>
current market price:
PV of face value = $1,000 / (1 + 4.5%)²⁶ = $318.40
PV of coupon payments = $35 x 15.14661 (PV annuity factor, 4.5%, 26 periods) = $530.13
current market price = $318.40 + $530.13 = $847.53
price in 1 year:
PV of face value = $1,000 / (1 + 4.5%)²⁴ = $347.70
PV of coupon payments = $35 x 14.49548 (PV annuity factor, 4.5%, 24 periods) = $507.34
market price = $347.70 + $507.34 = $855.04
price in 3 years:
PV of face value = $1,000 / (1 + 4.5%)²⁰ = $414.64
PV of coupon payments = $35 x 13.00794 (PV annuity factor, 4.5%, 20 periods) = $455.28
market price = $414.64+ $455.28 = $869.92
price in 8 years:
PV of face value = $1,000 / (1 + 4.5%)¹⁰ = $643.93
PV of coupon payments = $35 x 7.91272 (PV annuity factor, 4.5%, 10 periods) = $276.95
market price = $643.93 + $276.95 = $920.88
price in 12 years:
PV of face value = $1,000 / (1 + 4.5%)² = $915.73
PV of coupon payments = $35 x 1.87267 (PV annuity factor, 4.5%, 2 periods) = $65.54
market price = $915.73 + $65.54 = $981.27
price in 13 years:
market price = $1,000 + $35 = $1,035
