Bond X is a premium bond making semiannual payments The bond

Bond X is a premium bond making semiannual payments. The bond pays a coupon rate of 7 percent, has a YTM of 5 percent, and has 17 years to maturity. Bond Y is a discount bond making semiannual payments. This bond pays a coupon rate of 5 percent, has a YTM of 7 percent, and also has 17 years to maturity. The bonds have a $1,000 par value. What is the price of each bond today? (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16.) Price of Bond X Price of Bond Y If interest rates remain unchanged, what do you expect the price of these bonds to be one year from now? In seven years? In 12 years? In 16 years? In 17 years? (Do not round intermediate calculations. Round your answers to 2 decimal places, e.o. 32.16.) Bond Y Price of bond One year Seven years 12 years 16 years 17 years

Solution

Price of bond x is:

Price of bond Y:

Using the same formula below boxes are filled:

Bond Y:

	Particulars	Cash flow	Discount factor	Discounted cash flow
	Interest payments-Annuity (5%,17 periods)	70.0	11.2741	789.18
	Principle payments -Present value (5%,17 periods)	1,000	0.4363	436.30
A	Bond price			1,225.48
	Face value			1,000
	Premium/(Discount)			225.48
	Interest amount:
	Face value	1,000
	Coupon/stated Rate of interest	7.00%
	Frequency of payment(once in)	12 months
B	Interest amount	1000*0.07*12/12=		70
	Present value calculation:
	yield to maturity/Effective rate	5.00%
	Effective interest per period(i)	0.05*12/12=		5.00%
	Number of periods:
Ref	Particulars	Amount
a	Number of interest payments in a year	1
b	Years to maturiy	17
c=a*b	Number of periods	17