a. Caicuitit the taling price foe tech of the bontt. cither. Woy is twat the caser (1liected 13 toe heased ient) Bond valuation and yield to maturity Personal Finance Problem Mark Goldsmith's broker has shown him two bonds issued by ditferent companies. Each has a maturity of 4 years, a par value of $1,000, and a yield to maturity of 8.40%. The first bond is issued by Crabbe Waste Disposal and has a coupon interest rate of 6.325% paid annually. The second bond, issued by Malfoy Enterprises, has a coupon interest rate of 8.80% paid annually. a. Calculate the selling price for each of the bonds. b. Mark has $18,000 to invest. If he wants to irvest only in bonds issued by Crabbe Waste Disposal, how many of those bonds could he buy? What it he wants to invest only in bonds issued by Malfoy Enterprises? c. What is the total interest income that Mark could eam each year if he invested only in Crabbe bonds? How much interest would he eam each year it he invested only in Matoy bonds? d. Assume that Mark will reinvest all the interest he recetves as it is paid and that his rate of retum on the roinwosted internst will be 9%. Calculase the total dollars that Mark will accumulate over 4 years if he invosts in Crabbe bonds or Malfoy bonds. Your total calculation will incluce the interest Mark gets, the principal he recelves whien the bonds mature, and all the adoitional interest he earns from reinvesting the coupon poyments he receives: e. The bonds issued by Crabbe and Malfoy might appear to be equally good investments because they offer the same yeid to maturity of 8.40 s. Notice, however, that your answers to part d are not the same for each bond, suggesting that one bond is a better investment than the other. Why is that the case? a. The seling price for the Crabbe Waste Disposal bond is $931.88. (Round to the nearest cent.) The selling price for the Malfoy Enterpeises bond is $ (Round to the nearest cent) b. The number of Crabbe Waste Disposal bend issues Mark could purchase in issues. (Round down to the nearest whole number.) The number of Malfoy Enterprises bond issues Mark could purchase is issues. (Round dowa to the nearest whole number.) c. The yearly interest income of the Crabbe Waste Disposal bond is $ (Round to the nearest cent.) The yeady interest income of the Mailfoy Enterprises bond is $ (Round to the nearest cert.) d. If Mark invests in the Crabbe Waste Disposal bond, the value of the principw payment plus the value of his reinvestment account per bond is 3 a. Caicuitit the taling price foe tech of the bontt. cither. Woy is twat the caser (1liected 13 toe heased ient) Bond valuation and yield to maturity Personal Finance Problem Mark Goldsmith's broker has shown him two bonds issued by ditferent companies. Each has a maturity of 4 years, a par value of $1,000, and a yield to maturity of 8.40%. The first bond is issued by Crabbe Waste Disposal and has a coupon interest rate of 6.325% paid annually. The second bond, issued by Malfoy Enterprises, has a coupon interest rate of 8.80% paid annually. a. Calculate the selling price for each of the bonds. b. Mark has $18,000 to invest. If he wants to irvest only in bonds issued by Crabbe Waste Disposal, how many of those bonds could he buy? What it he wants to invest only in bonds issued by Malfoy Enterprises? c. What is the total interest income that Mark could eam each year if he invested only in Crabbe bonds? How much interest would he eam each year it he invested only in Matoy bonds? d. Assume that Mark will reinvest all the interest he recetves as it is paid and that his rate of retum on the roinwosted internst will be 9%. Calculase the total dollars that Mark will accumulate over 4 years if he invosts in Crabbe bonds or Malfoy bonds. Your total calculation will incluce the interest Mark gets, the principal he recelves whien the bonds mature, and all the adoitional interest he earns from reinvesting the coupon poyments he receives: e. The bonds issued by Crabbe and Malfoy might appear to be equally good investments because they offer the same yeid to maturity of 8.40 s. Notice, however, that your answers to part d are not the same for each bond, suggesting that one bond is a better investment than the other. Why is that the case? a. The seling price for the Crabbe Waste Disposal bond is $931.88. (Round to the nearest cent.) The selling price for the Malfoy Enterpeises bond is $ (Round to the nearest cent) b. The number of Crabbe Waste Disposal bend issues Mark could purchase in issues. (Round down to the nearest whole number.) The number of Malfoy Enterprises bond issues Mark could purchase is issues. (Round dowa to the nearest whole number.) c. The yearly interest income of the Crabbe Waste Disposal bond is $ (Round to the nearest cent.) The yeady interest income of the Mailfoy Enterprises bond is $ (Round to the nearest cert.) d. If Mark invests in the Crabbe Waste Disposal bond, the value of the principw payment plus the value of his reinvestment account per bond is 3
