Question

Bond Price MovementsMiller Corporation has a premium bond making semiannual payments. The bond pays a coupon of 6.5 percent, has a YTM of 5.3 percent, and has 13 years to maturity. The Modigliani Company has a discount bond making semiannual payments. This bond pays a coupon of 5.3 percent, has a YTM of 6.5 percent, and also has 13 years to maturity. Both bonds have a par value of $1,000. If interest rates remain unchanged, what do you expect the price of these bonds to be 1 year from now? In 3 years? In 8 years? In 12 years? In 13 years? What’s going on here? Illustrate your answers by graphing bond prices versus time to maturity.

kindly help me I am using BAII plus calculator

Answer 1

		Miller Corporation Bond:
		Par Value of Bond	$1,000
	Pmt	Annual Coupon payment	$65	(0,065*1000)
	Rate	Yield to maturity	5.30%
	Nper	Number of years to maturity	13
	Fv	Payment at maturity	$1,000
	PV1	Current Price of the bond	$1,110.71	(Using PV function of excelwith Rate =5.3%,Nper=13, Pmt=-65,Fv=-1000)
		Price after 1 year:
		Number of years to maturity	12
	PV2	Price of Bond after 1 year	$1,104.58	(Using PV function of excelwith Rate =5.3%,Nper=12, Pmt=-65,Fv=-1000)
		Price after 3 year:
		Number of years to maturity	10
	PV3	Price of Bond after 3 year	$1,091.33	(Using PV function of excelwith Rate =5.3%,Nper=10, Pmt=-65,Fv=-1000)
		Price after 8 year:
		Number of years to maturity	5
	PV4	Price of Bond after 8 year	$1,051.53	(Using PV function of excelwith Rate =5.3%,Nper=5, Pmt=-65,Fv=-1000)
		Price after 12 year:
		Number of years to maturity	1
	PV5	Price of Bond after 12 year	$1,011.40	(Using PV function of excelwith Rate =5.3%,Nper=5, Pmt=-65,Fv=-1000)
	PV6	Price after 13 year at maturity	$1,000
		Modigliani Company Bond:
		Par Value of Bond	$1,000
	Pmt	Annual Coupon payment	$53	(0,053*1000)
	Rate	Yield to maturity	6.50%
	Nper	Number of years to maturity	13
	Fv	Payment at maturity	$1,000
	PV1	Current Price of the bond	$896.80	(Using PV function of excelwith Rate =6.5%,Nper=13, Pmt=-53,Fv=-1000)
		Price after 1 year:
		Number of years to maturity	12
	PV2	Price of Bond after 1 year	$902.10	(Using PV function of excelwith Rate =6.5%,Nper=12, Pmt=-53,Fv=-1000)
		Price after 3 year:
		Number of years to maturity	10
	PV3	Price of Bond after 3 year	$913.73	(Using PV function of excelwith Rate =6.5%,Nper=10, Pmt=-53,Fv=-1000)
		Price after 8 year:
		Number of years to maturity	5
	PV4	Price of Bond after 8 year	$950.13	(Using PV function of excelwith Rate =6.5%,Nper=5, Pmt=-53,Fv=-1000)
		Price after 12 year:
		Number of years to maturity	1
	PV5	Price of Bond after 12 year	$988.73	(Using PV function of excelwith Rate =6.5%,Nper=1, Pmt=-53,Fv=-1000)
	PV6	Price after 13 year at maturity	$1,000
			Price of	Price of
		Number of years from now	Miller Bond	Modigliani bond
		0	$1,110.71	$896.80
		1	$1,104.58	$902.10
		3	$1,091.33	$913.73
		8	$1,051.53	$950.13
		12	$1,011.40	$988.73
		13	$1,000	$1,000
		Premium/discount Keeps on reducing as maturity nears and at maturity Premium/discount=Nil