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A company has two bonds outstanding. The first matures after five years and has a coupon...

A company has two bonds outstanding. The first matures after five years and has a coupon rate of 8.25 percent. The second matures after ten years and has a coupon rate of 8.25 percent. Interest rates are currently 10 percent. What is the present price of each $1,000 bond? Why are these prices different?

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Answer #1
BOND-I
n = 5
I = 10%
Cashflows Amount PVF Present Value
Annual Interest 82.5 3.79079 312.7402
Maturity Value 1000 0.620921 620.921
Price of Bonds 933.6612
BOND-II
n = 5
I = 10%
Cashflows Amount PVF Present Value
Annual Interest 82.5 6.14457 506.927
Maturity Value 1000 0.385543 385.543
Price of Bonds 892.47
The difference is due to time period of maturity
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