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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