Question 1:

Conics Inc has two types of bond issue: a zero-coupon bond with a face value of $30,000 which matures in 20 years; and a multi-coupon bond with a face value of also $30,000 and which also matures in 20 years, but with the following coupon payment structure: zero payments for the first six years, $800 every six months over the subsequent eight years, and then $1000 every six months for the final six years. Both bonds have a required rate of return of 8% compounded semi-annually.

A) What is the price of the zero-coupon bond today?

B) What is the price of the multi-coupon bond today?

Question 2:

Which of the following statements about interest rates is true?

-Shorter compounding intervals raise the stated annual interest rate.

-Longer compounding intervals lower the effective annual interest rate.

-Shorter compounding intervals lower the stated annual interest rate.

-Longer compounding intervals raise the effective annual interest rate.