Business, 21.08.2020 18:01 Branci5125

Miller Corporation has a premium bond making semiannual payments. The bond has a coupon rate of 8 percent, a YTM of 6 percent, and 18 years to maturity. The Modigliani Company has a discount bond making semiannual payments. This bond has a coupon rate of 6 percent, a YTM of 8 percent, and also has 18 years to maturity. Both bonds have a par value of $1,000. a. What is the price of each bond today

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Answer from: diametriagay

Company Price of Bond

Miller Corporation $1,218.32

Modigliani Company $810.92

Explanation:

The value of the bond is the present value (PV) of the future cash receipts expected from the bond. The value is equal to present values of interest payment plus the redemption value (RV).

Value of Bond = PV of interest + PV of RV

The value of bond Miller Corporation can be worked out as follows:

Step 1

PV of interest payments

Semi annul interest payment = 8%× 1000× 1/2 =40

Semi-annual yield = 6%/2 = 3% per six months

Total period to maturity (in months) = (2 × 18) = 36 periods

PV of interest =

40× (1- (1+0.03^(-36)/0.03)= 873.29

Step 2

PV of Redemption Value

= 1,000 × (1.03)^(-36) =345.03

Step 3:

Price of bond

= 873.29 + 345.03= $1,218.32

Modigliani Company

Step 1

PV of interest payments

Semi annul interest payment = 6%× 1000× 1/2 =30

Semi-annual yield = 8%/2 = 4% per six months

Total period to maturity (in months) = (2 × 18) = 36 periods

PV of interest =

30× (1- (1+0.04^(-36)/0.04)= 567.25

Step 2

PV of Redemption Value

= 1,000 × (1.03)^(-36) =243.66

Step 3:

Price of bond

= 567.2484586 + 243.66 = $810.92

Price of bond = $810.92

Answer from: Quest

The correct answer is b

Answer from: Quest

Secured loans are protected by collateral security. examples: title loans where the borrower uses the car title as collateral security interest rates are lower and repayments are longer therefore risk is low as a collateral security is given as guarantee to the bank in case of failure to pay the loanunsecured loans are not protected by collateral security but it is given on the creditworthiness of the borrower, trusting that she/he will pay on time. examples; payday loans is a short term loan where the borrower lends money from the bank and pays is back when the borrower receives his/her wages.interest rates are high and repayments are shorter. but the risk is high as no collateral security is given as a guarantee to the bank for payment of the loan

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Miller Corporation has a premium bond making semiannual payments. The bond has a coupon rate of 8 pe...

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