Question
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
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 20 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 20 years to maturity. If interest rates remain unchanged, what do you expect the price of these bonds to be 1 year from now? In 3 years? In 5 years? In 8 years? In 10 years? In 15 years? In 20 years? Whats going on here? Illustrate your answers by graphing bond prices versus time to maturity.
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