Question

Mark​ Goldsmith's broker has shown him two bonds issued by different companies. Each has a maturity of

5

​years, a par value of

​$1,000​,

and a yield to maturity of

8.70 %

  The first bond is issued by Crabbe Waste Disposal and has a coupon interest rate of

6.319​%

paid annually. The second ​ bond, issued by Malfoy​ Enterprises, has a coupon interest rate of

8.80​%

paid annually.

 Calculate the selling price for each of the bonds.906.66 and 1,003.92

 Mark has

​$21,000

to invest. If he wants to invest only in bonds issued by Crabbe Waste​ Disposal, how many of those bonds could he​ buy? What if he wants to invest only in bonds issued by Malfoy​ Enterprises?

Answer 1

If he wants to invest only in bonds issued by Crabbe Waste Disposal:

Amount Invested = $21,000
Price of Bond = $906.66

Number of Bonds Purchased = Amount Invested / Price of Bond
Number of Bonds Purchased = $21,000 / $906.66
Number of Bonds Purchased = 23.16 or 23

If he wants to invest only in bonds issued by Malfoy Enterprises:

Amount Invested = $21,000
Price of Bond = $1,003.92

Number of Bonds Purchased = Amount Invested / Price of Bond
Number of Bonds Purchased = $21,000 / $1,003.92
Number of Bonds Purchased = 20.92 or 21