Question

Bond X is a premium bond making semiannual payments. The bond pays a coupon rate of 11 percent, has a YTM of 9 percent, and has 15 years to maturity. Bond Y is a discount bond making semiannual payments. This bond pays a coupon rate of 9 percent, has a YTM of 11 percent, and also has 15 years to maturity. The bonds have a $1,000 par value. What is the price of each bond today?

Answer 1

Price of Bond X : $1,162.89

Price of bond Y : $854.66

Explanation:

Given the following information :

Bond X :

Face value = $1000

Yield to maturity (YTM) / market interest rate = 9%

Coupon rate = 11%

Years to maturity = 15 years

Compounding frequency = semianually

Using the online bond price calculator, The bond price will be $1,162.89. The bond is sold at premium, since the par value is lesser than the bond price.

For Bond Y:

Face value = $1000

Yield to maturity (YTM) / market interest rate = 11%

Coupon rate = 9%

Years to maturity = 15 years

Compounding frequency = semianually

Using the online bond price calculator, The bond price will be $854.66. The bond is sold at a discount , since the par value is greater than the bond price.