Miller corporation has a premium bond making semiannual payments. the bond pays a coupon of 10 percent, has a ytm of 8 percent, and has 14 years to maturity. the modigliani company has a discount bond making semiannual payments. this bond pays a coupon of 8 percent, has a ytm of 10 percent, and also has 14 years to maturity. what is the price of each bond today? price of miller corporation bond $ price of modigliani company bond $ interest rates remain unchanged, what do you expect the prices of these bonds to be 1 year from now? in 4 years? in 9 years? in 13 years? in 14 years? (do not round intermediate calculations and round your answers to 2 decimal places, e. g., 32.16.)price of bond miller corporation bond modigliani company bond 1 year $ $ 4 years $ $ 9 years $ $ 13 years $ $ 14 years $ $

          Miller Bond:                    

Today:      1,166.63

1-year       1,159.83

4-years     1,135.90

9-years     1,081.11

13-years   1,018.86

14-years  1,000 (maturity)

Modigliani Bond

Today:     851.01

1-year      856.25

4-years    875.38

9-years     922.78

13-years   981.41

14-years  1,000 (maturity)

Explanation:

The present value will be the discount coupon payment and maturirty at the YTM rate:

Miller Bond:

The coupon payment are calcualte as ordinary annuity

C50.00 (1,000 x 10% / 2)

time      28 (14 years x 2 payment per year)

rate   0.04 (8% YTM / 2 payment per year)

PV$833.1532

While Maturity, using the lump sum formula

Maturity  $1,000.00

time   28 semesters

rate  0.04

PV   333.48

PV coupon $833.1532  +PV maturity  $333.4775  = Total$1,166.6306

For the subsequent time we must adjust t

in one year, there will be 26 payment until maturity

PVcoupon$799.1385

PVmaturity   360.69

Total$1,159.8277

As the bond get closer to maturity it will get closer to face value until maturity when it will equalize it.

We recalculate the same formula with values of:

in 4-year : then 10 years to maturity t = 20

in 9-years: then 5 years to maturity t= 10

in 13-years: 1 year to maturity t = 2

at 14 years: is maturity date so equals the face value of 1,000

Remember: there are two payment per year.

Same process will be done with Modigliani bond:

C1,000 x 8% / 2 payment per year : 40.00

time: 14 years x 2 payment per year = 28 payment

rate10% annual rate /2 = 0.05

PVcoupon $595.9251

Maturity $ 1,000.00

time   28 semester

rate  0.05

PV  maturity 255.09

PV coupon$595.9251  + PV maturity  $255.0936 = Total$851.0187

and then we calcualte for the same values of t we are asked for the Miller bond.

answer(b) partnership';