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Q1: Chau, Hui, and Lu are considering buying a bond. Bond A has face value $2,000, matures in 5 years, pays a coupon of 4%
Q1: Chau, Hui, and Lu are considering buying a bond. Bond A has face value $2,000, matures in 5 years, pays a coupon of 4% and costs $1914.70. Bond B has face value $1,000, matures in 10 years, pays a coupon of 6% and costs $1,000.00. Bond A has face value $5,000, matures in 7 years, pays a coupon of 7% and costs $5141.20 Chau thinks Bond A is the best buy because it costs less than face value. Hui thinks Bond B is the best buy because it is the cheapest and has the longest maturity. Lu thinks Bond C is the best buy because it is trading at a premium and has the highest coupon. a) Which bond do you think is the best buy? What did you base this answer on? b) Are any of the reasons given by the Chau, Hui, and Lu correct? c) Give bond amortization tables for all three bonds. If you're using a spreadsheet, give the entire table for each bond. If you're writing it out by hand, give the first 3 rows for each bond. Please provide detailed explanation and mathematical formulas for better understanding. Thanks
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