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Miller Corporation has a premium bond making semiannual payments. The bond pays a coupon of 12 percent,...

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Finance

Miller Corporation has a premium bond makingsemiannual payments. The bond pays a coupon of 12 percent, hasa YTM of 10 percent, and has 18 years to maturity. The ModiglianiCompany has a discount bond making semiannual payments. This bondpays a coupon of 10 percent, has a YTM of 12 percent, and also has18 years to maturity.

 

What is the price of each bond today? (Do notround intermediate calculations and round your answers to 2 decimalplaces, e.g., 32.16.)

 

If interest rates remain unchanged, what do you expectthe prices of these bonds to be 1 year from now? In 7 years? In 12years? In 16 years? In 18 years? (Do not round intermediatecalculations and round your answers to 2 decimal places, e.g.,32.16.)

Answer & Explanation Solved by verified expert
3.6 Ratings (651 Votes)
Price of bond C x 11 1r nr M 1r n C Coupon amount Face Value x Coupon rate No of coupon payments annually r Rate of interest n No of periods to maturity M Face Value 1000 assumed Bond Price of Miller Corporation C 1000 x 12 2 1202 60 r 10 pa or 012 005 semiannually n 18 yrs x 2 periods 36 periods Bond Price 60 x 11 100536005 1000 1005 36 60 x 11 105 36005 1000 105 36 60 x 11 579181613597186005 1000 579181613597186 60 x 1 0172657414621502005    See Answer
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Transcribed Image Text

Miller Corporation has a premium bond makingsemiannual payments. The bond pays a coupon of 12 percent, hasa YTM of 10 percent, and has 18 years to maturity. The ModiglianiCompany has a discount bond making semiannual payments. This bondpays a coupon of 10 percent, has a YTM of 12 percent, and also has18 years to maturity. What is the price of each bond today? (Do notround intermediate calculations and round your answers to 2 decimalplaces, e.g., 32.16.) If interest rates remain unchanged, what do you expectthe prices of these bonds to be 1 year from now? In 7 years? In 12years? In 16 years? In 18 years? (Do not round intermediatecalculations and round your answers to 2 decimal places, e.g.,32.16.)

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