To find the price of Bond B using the Time Value of Money (TVM) concepts, we'll apply the bond pricing formula based on the present value of future cash flows. Here's how we approach the calculation step-by-step:

Information Given

1. Bond A:

   • Price $P_A = 762.2$
   • Face Value $FV = 1000$
   • Coupon Rate $C_A = 5.84\%$
   • Annual Coupon Payment $C_A = 0.0584 \times 1000 = 58.4$
   • Maturity $N_A = 20$ years
   • YTM (which we will determine from Bond A)

2. Bond B:

   • Face Value $FV = 1000$
   • Coupon Rate $C_B = 10.22\%$
   • Semi-Annual Coupon Payment $C_B = 0.1022 \times 1000 / 2 = 51.1$
   • Maturity $N_B = 9$ years $= 9 \times 2 = 18$ semi-annual periods

Step 1: Calculate YTM of Bond A

Using the bond pricing formula: $P = \sum_{t=1}^{N} \frac{C}{(1 + r)^t} + \frac{FV}{(1 + r)^N}$

Substituting the values: $762.2 = \sum_{t=1}^{20} \frac{58.4}{(1 + r)^t} + \frac{1000}{(1 + r)^{20}}$

This requires numerical methods or a financial calculator to solve for $r$. We will assume a YTM for Bond A first and then compute it accurately.

Step 2: Using a Financial Calculator or Iterative Method

After trying various rates, we find that $YTM \approx 8\%$ for Bond A.

Step 3: Calculate Price of Bond B Using YTM from Bond A

Now using this YTM for Bond B, we will adjust it for semi-annual payments. The effective semi-annual YTM is: $r = \frac{8\%}{2} = 4\% = 0.04$

Step 4: Price Calculation for Bond B

Using the bond pricing formula for Bond B: $P_B = \sum_{t=1}^{18} \frac{51.1}{(1 + 0.04)^t} + \frac{1000}{(1 + 0.04)^{18}}$

Calculating each component:

1. Present Value of Coupons: $PV_{coupons} = 51.1 \times \left(\frac{1 - (1 + 0.04)^{-18}}{0.04}\right)$

2. Present Value of Face Value: $PV_{FV} = \frac{1000}{(1 + 0.04)^{18}}$

Calculation

Calculating both components gives us:

1. $PV_{coupons} \approx 51.1 \times 13.5903 \approx 694.15$
2. $PV_{FV} \approx \frac{1000}{2.0254} \approx 493.03$

Adding them together: $P_B \approx 694.15 + 493.03 \approx 1187.18$

Thus, the price of Bond B is approximately $1187.18.

Summary

• Price of Bond B: $1187.18

Would you like further details or explanations on any part of the calculations? Here are some related questions you might consider:

1. How does changing the coupon rate affect bond prices?
2. What are the implications of different YTMs for bond investments?
3. How can bond pricing be affected by changes in market interest rates?
4. What is the significance of the duration of a bond?
5. How do you calculate the yield to maturity for a bond?

Tip

When valuing bonds, always consider the impact of market conditions on interest rates, as they directly influence bond pricing.