Question

Miller Corporation has a premium bond making semiannual payments. The bond pays a coupon of 10 percent, has a YTM of 8 percent, and has 16 years to maturity. The Modigliani Company has a discount bond making semiannual payments. This bond pays a coupon of 8 percent, has a YTM of 10 percent, and also has 16 years to maturity. What is the price of each bond today? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)) Price of Miller Corporation bond $ Price of Modigliani Company bond $ If interest rates remain unchanged, what do you expect the price of these bonds to be In 11 years? In 15 years? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

Answer 1

Answer

Let’s assume that Bond has a face value of $1,000

Miller Corporation

So I am solving this question using the help of Excel PV function, Where

Price of Bond Today

Interest Rate (Rate) (8% / 2)	4%
Semiannual Payment (pmt) ($1,000 * 10% * 6/12 months)	50
Semiannual Period (nper) (16 years * 2)	32
Future Value (fv)	1000
Present Value	$1,178.74

Price of Bond in 11 years, SO now we will just change the Semiannual period to10 (5 years * 2) as there are 10 Semiannual periods left.

Miller Corporation
Interest Rate	4%
Semiannual Payment	50
Semiannual Period	10
Future Value	1000
Present Value	$1,081.11

Price of Bond in 15 years, SO now we will just change the Semiannual period to2 (1 years * 2) as there are 2 Semiannual periods left.

Miller Corporation
Interest Rate	4%
Semiannual Payment	50
Semiannual Period	2
Future Value	1000
Present Value	$1,018.86

Modigliani Corporation

Let’s assume that Bond has a face value of $1,000

Price of Bond Today

Modigliani Corporation
Interest Rate (10% / 2)	5%
Semiannual Payment ($1,000 * 8% * 6/12 months)	40
Semiannual Period	32
Future Value	1000
Present Value	$841.97

Price of Bond in 11 years, SO now we will just change the Semiannual period to10 (5 years * 2) as there are 10 Semiannual periods left.

Modigliani Corporation
Interest Rate	5%
Semiannual Payment	40
Semiannual Period	10
Future Value	1000
Present Value	$922.78

Price of Bond in 15 years, SO now we will just change the Semiannual period to2 (1 years * 2) as there are 2 Semiannual periods left.

Modigliani Corporation
Interest Rate	5%
Semiannual Payment	40
Semiannual Period	2
Future Value	1000
Present Value	$981.41

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