Question

       Is it true that the interest (excluding par value) cash flows of a 10-year bond that...

       Is it true that the interest (excluding par value) cash flows of a 10-year bond that pays coupon interest annually, has a coupon rate of 5%, and has a par value of $100,000 is a 20-year $2,500 annuity? please first answer YES or NO. Then draw the cash flows on a timeline to explain, Thanks.

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Answer #1

No, The value won't be the same

Explanation

1. In bond we are going to receive a coupon of $5000 (100000*5%) per year for 10 years

2. in annuity we receive a payment of $2500 for 20 years

even though the total value of the coupon and annuity is same in nominal terms bit the time value of money make the amount received earlier higher value than the other.

Thus value of Bonds interest payments is higher than Annuity

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