Miller corporation has a premium bond making semiannual payments. the bond has a coupon rate of 11 percent, a ytm of 9 percent, and 15 years to maturity. the modigliani company has a discount bond making semiannual payments. this bond has a coupon rate of 9 percent, a ytm of 11 percent, and also has 15 years to maturity. both bonds have a par value of $1,000. what is the price of each bond today?

The price of miller's bond today  $1,162.89

The price of Modgliani's bond today  $854.66

Explanation:

The approach taken to arrive at the prices was that of discounting the future cash flows in terms of  semi-annual coupon interest  payment and repayment of principal of the two bonds to today's terms.

In discounting the cash flows I used the pv formula in excel, pv(rate,nper,pmt,-fv)

rate is the semi-annual yield to maturity of 4.5% for Miller and 5.5% for Modgliani

The nper is 15*2( 15 for years, 2 for semi-annual interest payment)

pmt is the semi-annual coupon payable by the bonds,$55 for Miller and $45 for Modliani

The future value is $1000 and it is same for both bonds

Find the calculation in the attached

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