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# Estimating the price of a bond

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Bond X is a premium bond making annual payments. The bond pays an 13 percent coupon, has a YTM of 9 percent, and has 24 years to maturity. Bond Y is a discount bond making annual payments. This bond pays a 9 percent coupon, has a YTM of 13 percent, and also has 24 years to maturity. If interest rates remain unchanged, you would expect that 6 years from now, Bonds X and Y will be priced at \$? and \$?, respectively. And in 11 years: \$? and \$?.

#### Solution Preview

Let us assume Par Value of each bond=P=\$1000

At the end of 6 years

In the case of Bond X
Number of coupon payments left=n=24-6=18
YTM=r=9% annual
Coupon amount=1000*13%=\$130

Price at the end of 6 years=C/r*(1-1/(1+r)^n)+P/(1+r)^n
=130/9%*(1-1/(1+9%)^18)+1000/(1+9%)^18
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#### Solution Summary

Solution describes the steps to estimate price of coupon paying bonds.

\$2.19