Question

Miller Corporation has a premium bond making semiannual payments. The bond has a coupon rate of 10 percent, a YTM of 8 percent, and 16 years to maturity. The Modigliani Company has a discount bond making semiannual payments. This bond has a coupon rate of 8 percent, 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. Round your answers to 2 decimal places (e.g., 32.16).)

Price of Miller bond	$
Price of Modigliani bond	$

If interest rates remain unchanged, what do you expect the price of these bonds to be 1 year from now? In 7 years? In 11 years? In 15 years? In 16 years? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)

Price of bond in:	Miller bond	Modigliani bond
1 year	$	$
7 years	$	$
11 years	$	$
15 years	$	$
16 years	$	$

Answer 1

Miller bond

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =16x2

Bond Price =∑ [(10*1000/200)/(1 + 8/200)^k]     +   1000/(1 + 8/200)^16x2

k=1

Bond Price = 1178.74

Price in:

1 year

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =15x2

Bond Price =∑ [(10*1000/200)/(1 + 8/200)^k]     +   1000/(1 + 8/200)^15x2

k=1

Bond Price = 1172.92

7 year

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =9x2

Bond Price =∑ [(10*1000/200)/(1 + 8/200)^k]     +   1000/(1 + 8/200)^9x2

k=1

Bond Price = 1126.59

11 year

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =5x2

Bond Price =∑ [(10*1000/200)/(1 + 8/200)^k]     +   1000/(1 + 8/200)^5x2

k=1

Bond Price = 1081.11

15 year

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =1x2

Bond Price =∑ [(10*1000/200)/(1 + 8/200)^k]     +   1000/(1 + 8/200)^1x2

k=1

Bond Price = 1018.86

16 year

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =0x2

Bond Price =∑ [(10*1000/200)/(1 + 8/200)^k]     +   1000/(1 + 8/200)^0x2

k=1

Bond Price = 1000

Modigliani bond

Price in:

1 year

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =15x2

Bond Price =∑ [(8*1000/200)/(1 + 10/200)^k]     +   1000/(1 + 10/200)^15x2

k=1

Bond Price = 846.28

7 year

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =9x2

Bond Price =∑ [(8*1000/200)/(1 + 10/200)^k]     +   1000/(1 + 10/200)^9x2

k=1

Bond Price = 883.1

11 year

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =5x2

Bond Price =∑ [(8*1000/200)/(1 + 10/200)^k]     +   1000/(1 + 10/200)^5x2

k=1

Bond Price = 922.78

15 year

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =1x2

Bond Price =∑ [(8*1000/200)/(1 + 10/200)^k]     +   1000/(1 + 10/200)^1x2

k=1

Bond Price = 981.41

16 year

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =0x2

Bond Price =∑ [(8*1000/200)/(1 + 10/200)^k]     +   1000/(1 + 10/200)^0x2

k=1

Bond Price = 1000