Question
In: Finance
Miller Corporation has two bonds outstanding. Both bonds have coupon rates of 10% and one has...
Miller Corporation has two bonds outstanding. Both bonds have
coupon rates of 10% and one has a maturity of 10 years, while the
other has a maturity of 20 years. Interest is paid semi-annually.
Calculate the following for both bonds.
A) If market rates for bonds of equal risk fell to 8% what would be
the maximum price an investor would be willing to pay for these
bonds?
B) If market rates for bonds of equal risk remained at 10%, what
would be the bonds' current worth?
C) If market rates for bonds of equal risk rose to 12%, what would
be the bonds' theoretical value?
Bond A: 10 years semiannually = 20 periods
Bond B: 20 years semiannually = 40 periods
please need detail answers with workings
Solutions
Expert Solution
| Bond | A | B | |
| Coupon | 10% | 10% | |
| Maturity | 10 years | 20 years | |
| a | Rate | 8% | 8% |
| Price | $1,135.90 | $1,197.93 | |
| b | Rate | 10% | 10% |
| Price | $1,000.00 | $1,000.00 | |
| c | Rate | 12% | 12% |
| Price | $885.30 | $849.54 |
Workings
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