Bond valuation and yield to maturity Personal Finance Problem Mark Goldsmittis broker has shown him two bonds issued by different companies. Each has a maturity of 5 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 interost rate of 6.323% paid annually. The second bond, issued by Malfoy Enterprises, has a coupon interest rate of 8.90% paid annually a. Calculate the seling price for each of the bonds. b. Mark has $18,000 to invest. If he wants to invest only in bonds issued by Crabbe Waste Disposal, how many of those bonds could he bun What if he wants to invest only in bonds issued by Malfoy Enterprises? c. What is the total interest income that Mark could earn each year it he invested only in Crabbe bonds? How much interest would he earn each year if he invested only in Malloy bonds? d. Assume that Mark will reirvest all the interest he receives as it is paid and that his rate of return on tho reinvested interest wilt be 11%. Calculate the total dollars that Mark will accumulate over 5 years if he invests in Crabbe bonds or Malfoy bonds. Your total calculation will include the interest Mark gets, the principel he receives when the bonds mature, and al the additional interest ho earns from reinvesting the coupon payments he recelves: e. The bonds issued by Crabbe and Malfoy might appear to be equally good investments because they offer the same yold to maturity of 8.40%. Notice, however, that yout answers to part d are not the same for each bond, suggesting that one bond is a botter investment than the other. Why is that the case? a. The selling price for the Crabbe Waste Disposal bond is ? (Round to the nearest cent.) Bond valuation and yield to maturity Personal Finance Problem Mark Goldsmittis broker has shown him two bonds issued by different companies. Each has a maturity of 5 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 interost rate of 6.323% paid annually. The second bond, issued by Malfoy Enterprises, has a coupon interest rate of 8.90% paid annually a. Calculate the seling price for each of the bonds. b. Mark has $18,000 to invest. If he wants to invest only in bonds issued by Crabbe Waste Disposal, how many of those bonds could he bun What if he wants to invest only in bonds issued by Malfoy Enterprises? c. What is the total interest income that Mark could earn each year it he invested only in Crabbe bonds? How much interest would he earn each year if he invested only in Malloy bonds? d. Assume that Mark will reirvest all the interest he receives as it is paid and that his rate of return on tho reinvested interest wilt be 11%. Calculate the total dollars that Mark will accumulate over 5 years if he invests in Crabbe bonds or Malfoy bonds. Your total calculation will include the interest Mark gets, the principel he receives when the bonds mature, and al the additional interest ho earns from reinvesting the coupon payments he recelves: e. The bonds issued by Crabbe and Malfoy might appear to be equally good investments because they offer the same yold to maturity of 8.40%. Notice, however, that yout answers to part d are not the same for each bond, suggesting that one bond is a botter investment than the other. Why is that the case? a. The selling price for the Crabbe Waste Disposal bond is ? (Round to the nearest cent.)
