2. Valuing Bonds and Choosing a Car Loan

A.What price should you be willing to pay for a risk-free coupon bond that pays $400 per year (starting in one year) for 20 years and $10,000 at the date of maturity (year 20) if the rate of return on other risk-free investments is 5 percent?Show and explain your reasoning.

B. Suppose a five-year zero-coupon bond (i.e., discount bond) pays $100,000 at maturity and its price is $86,260.88 when it is issued? What is the bond's yield to maturity?In words, explain the meaning of yield to maturity.

C. Consider a car loan that requires monthly payments at an annual percentage rate (APR) of 8 percent. What is the equivalent annual rate (EAR) for this loan?Which rate represents better the annual cost of the loan?Why?