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Q2: Bond Valuation Consider the following bonds issued by Romana Co to raise $50m. The two bonds have a 10-year maturity and face value of
Q2: Bond Valuation
Consider the following bonds issued by Romana Co to raise $50m. The two bonds have a 10-year maturity and face value of $1000.
- Bond A is a coupon- paying bond with coupon rate of 6% paid annually
- Bond B is a zero- coupon bond
Required:
- Estimate the price of bond A & B at 2% yield to maturity. (3 marks)
- If yield to maturity rise from 2 to 2.5 %. Re-estimate the price of bond A & B at 2.5%. (3 marks)
- As an investor which bond would you prefer and why?(2 marks)
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