Question
(a) Two bonds have par values of RM1,000. Bond Unicorn is a 5%, 15-year bond priced to yield 8%. Bond Hillary is a 7%, 20-year
(a) Two bonds have par values of RM1,000. Bond Unicorn is a 5%, 15-year bond priced to yield 8%. Bond Hillary is a 7%, 20-year bond priced to yield 7%. Which of these two has a lower price? (b) You are interested to invest your money in corporate bond. Currently you are evaluating 2 bonds. Bond DIGGIT and bond MAXXIS. Bond DIGGIT pays 8.5% coupon annually with maturity period of 10 years. Bond MAXXIS pays 12% coupon semi-annually (15 years bond) issued 6 years ago. Market interest rate for both bonds is 10%. Which bond would you buy? Assume Bond DIGGIT is currently selling at RM850 while Bond MAXXIS is selling at RM980. Justify your answer.
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