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Bond A pays annual coupons, pays its next coupon in 1 year, matures in 17 years,...

Bond A pays annual coupons, pays its next coupon in 1 year, matures in 17 years, and has a face value of 1,000 dollars. Bond B pays semi-annual coupons, pays its next coupon in 6 months, matures in 15 years, and has a face value of 1,000 dollars. The two bonds have the same yield-to-maturity. Bond A has a coupon rate of 9.28 percent and is priced at 998.32 dollars. Bond B has a coupon rate of 9.62 percent. What is the price of bond B?

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Answer #1

The question can be solved using excel presented below.

First the yield to maturity of bond A has to be found which comes at 9.30% (refer table)

Then using this yield, (both bonds has same yield) Present price of Bond can be find = $ 1,032.02 Formula is given

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