Question
Markus is considering investing in either of two outstanding bonds. The bonds both have N$5,000 par values and 8% coupon interest rates and pay interest
Markus is considering investing in either of two outstanding bonds. The bonds both have N$5,000 par values and 8% coupon interest rates and pay interest twice a year. Bond A has exactly 10 years to maturity and bond B has 20 years to maturity. Show your calculations in full. a. Calculate the value of bond A if required return is 5%. Show your calculations in full. b. Calculate the value of bond B if the required return is 3.5%. Show your calculations in full. c. Which bond would you recommend to Markus to buy if he wishes to minimise interest rate risk? Support your answer.
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