Question
a. Winston's broker has shown him two bonds. Each has a maturity of 8 years, a par value of $25,000, and a yield to maturity
a. Winston's broker has shown him two bonds. Each has a maturity of 8 years, a par value of $25,000, and a yield to maturity of 12%. Bond A has a coupon interest rate of 10% paid annually. Bond B has a coupon interest rate of 15% paid annually.
Calculate the selling price for each of the bonds. 3 marks
b. Assume that Winston will reinvest the interest payments as they are paid (at the end of each year) and that his rate of return on the reinvestment is only 10%. For each bond, calculate the value of the principal payment plus the value of Winston's reinvestment account at the end of the 5 years. 4 marks
show all working please thank you!!
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