Question

A bond with a $1,000 face value and a 9 percent annual coupon pays interest annually....

A bond with a $1,000 face value and a 9 percent annual coupon pays interest annually. The bond matures in 12 years.

A. Determine the value of the bond to a friend of yours with a required rate of return of 11%?

B. A zero-coupon bond with similar risk is selling for $300. The bond has a face value of $1,000 and matures in 12 years. Your friend asks you which bond she should invest in, the zero coupon bond or the bond in part (a). Which bond di you recommend, and why? Assume the market price id the bond in part (a) is $720
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Answer #1

ANSWER IN THE IMAGE. FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE.

a.

b.

the friend should buy bond A (normal coupoun bond) because it is selling cheaper(720) compared to its should be price of 870.15, whereas its vice versa for zero coupoun bond.

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