1. Nancy is considering two bonds for investment. Bond A has semiannual coupons and a rate of

7.25% with four years to maturity. Bond B pays annually with a coupon rate of 6.75% and 9

years to maturity. Both bonds have face values of $1,000. The rate in the marketplace on

bonds in a similar risk category is 7%.

Bond A

Bond B

What is the

PRESENT VALUE

of the coupon stream? ________________

________________

What is the

PRESENT VALUE

of the face value? ________________

________________

What is the

TOTAL VALUE

of the bond? ________________

________________

If both bonds are showing in the WSJ at 99, what should Nancy do?

Buy bond A only _____ Buy bond B only _____ Buy both of them ______ Buy neither ______