Miller Corporation bond: P0 = $40(PVIFA3%,26) + $1,000(PVIF3%,26) = $1,178.77 P1 = $40(PVIFA3%,24) + $1,000(PVIF3%,24) = $1,169.36 P3 = $40(PVIFA3%,20) + $1,000(PVIF3%,20) = $1,148.77 P8 = $40(PVIFA3%,10) + $1,000(PVIF3%,10) = $1,085.30 P12 = $40(PVIFA3%,2) + $1,000(PVIF3%,2) = $1,019.13 P13 = $1,000 Modigliani Company bond: P0 = $30(PVIFA4%,26) + $1,000(PVIF4%,26) = $840.17 P1 = $30(PVIFA4%,24) + $1,000(PVIF4%,24) = $847.53 P3 = $30(PVIFA4%,20) + $1,000(PVIF4%,20) = $864.10 P8 = $30(PVIFA4%,10) + $1,000(PVIF4%,10) = $918.89 P12 = $30(PVIFA4%,2) + $1,000(PVIF4%,2) = $981.14 P13 = $1,000 All else held equal, the premium over par value for a premium bond declines as maturity approaches, and the discount from par value for a discount bond declines as maturity approaches. This is called “pull to par.” In both cases, the largest percentage price changes occur at the shortest maturity lengths. Also, notice that the price of each bond when no time is left to maturity is the par value, even though the purchaser would receive the par value plus the coupon payment immediately. This is because we calculate the clean price of the bond. 15. Any bond that sells at par has a YTM equal to the coupon rate. Both bonds sell at par, so the initial YTM on both bonds is the coupon rate, 7 percent. If the YTM suddenly rises to 9 percent: PLaurel = $35(PVIFA4.5%,4) + $1,000(PVIF4.5%,4) = $964.12 PHardy = $35(PVIFA4.5%,30) + $1,000(PVIF4.5%,30) = $837.11 The percentage change in price is calculated as: Percentage change in price = (New price – Original price) /