Bond X is a premium bond making semiannual payments. The bond pays a coupon rate of 11 percent, has a YTM of 9 percent, and has

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Bond X is a premium bond making semiannual payments. The bond pays a coupon rate of 11 percent, has a YTM of 9 percent, and has

11 years to maturity. Bond Y is a discount bond making semiannual payments. This bond pays a coupon rate of 9 percent, has a YTM of 11 percent, and also has 11 years to maturity. The bonds have a $1,000 par value. What is the price of each bond today

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1 answer:

alexandr1967 [171] · Answer 1 · 2022-06-15T03:30:03+03:00

Answer:

Results are below.

Explanation:

To calculate the price of each bond, we need to use the following formula:

Bond Price= cupon*{[1 - (1+i)^-n] / i} + [face value/(1+i)^n]

Bond X:

Coupon= (0.11/2)*1,000= $55

YTM= 0.09/2= 0.045

Years to maturiy= 11 years

Bond Price= 55*{[1 - (1.045^-11)] / 0.045} + [1,000/(1.045^11)]

Bond Price= 469.1 + 616.2

Bond Price= $1,085.3

Bond Y:

Coupon= (0.09/2)*1,000= $45

YTM= 0.11/2= 0.055

Years to maturiy= 11 years

Bond Price= 45*{[1 - (1.055^-11)] / 0.055} + [1,000/(1.045^11)]5

Bond Price= 364.16 + 554.91

Bond price= $919.07