Which of the two bond has lower price per bond. Bond X that pay 6% annual coup-on (semi-annually) that will mature in 14 years. Bond Y, that will mature in 8 years and pay no coup-on. Discount rate for both bonds are the same 13%.

Which of the two bond has lower price per bond. Bond X that pay 6% annual coup-on (semi-annually) that will mature in 14 years. Bond Y, that will mature in 8 years and pay no coup-on. Discount rate for both bonds are the same 13%.

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter6: Bonds (debt) - Characteristics And Valuation

Section: Chapter Questions

Problem 4PROB

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Question

Which of the two bond has lower price per bond. Bond X that pay 6% annual coup-on (semi-annually) that
will mature in 14 years. Bond Y, that will mature in 8 years and pay no coup-on. Discount rate for both
bonds are the same 13%.

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Step 1: Calculate price of the coupon bond

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Step 2: Calculate price of zero coupon bond

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Step 3: Compare bonds

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