Homework SourseAn investor has two bonds in her portfolio Bond C and Bond Z
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 9.3%. Bond C pays a 11% annual coupon, while Bond Z is a zero coupon bond.
Assuming that the yield to maturity of each bond remains at 9.3% 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 | $ | $ |
| 0 | $ | $ |
Solution
BOND C
100PVIFA(9.3%,4)+1000PVIF(9.3%,4)=$3540.35
100PVIFA(9.3%,3)+1000PVIF(9.3%,3)=$2769.58
100PVIFA(9.3%,2)+1000PVIF(9.3%,2)= $1927.2
100PVIFA(9.3%,1)+1000PVIF(9.3%,1)= $1006.39
100PVIFA(9.3%,0)+1000PVIF(9.3%,0)= $ 0
BOND Z
1000/1.093^4=$699.65
1000/1.093^3= $765.84
1000/1.093^2= $837.07
1000/1.093^1= $914.91
1000/1.093^0= $1000
