Problem 1 Bonds (30 marks)

Suppose Canco were to issue $1,000 bonds with 6 years to maturity. The annual coupon is $120. Similar bonds have a yield to maturity of 15%. What is the bond value? Provide the full steps for full mark.

(10 marks)

Suppose now that Banco were to issue $1,000 bond with 6 years to maturity. The annual coupon is $130.Similar bonds have a yield to maturity of 12%. What is the bond value? Provide full steps for full mark. (10 marks)

Which option do you prefer? Minimum 200 words for full mark. (10 marks)