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In planning for your retirement -- twenty five years from today -- you are considering an investment today into one of two bonds: a. A
In planning for your retirement -- twenty five years from today -- you are considering an investment today into one of two bonds: a. A twenty-five year 12% per annum coupon rate bond (paid semi-annually). There are 50 remaining coupons and the upcoming coupon is in exactly six months. Par is $1,000. b. A bond that pays no coupons but only a lump sum amount (the face amount) in exactly 25 years (i.e., a zero coupon bond). Prices of both bonds are $1,429.644 and they both yield 8% per annum compounded semi-annually. If you buy bond (a) you expect to be able to reinvest coupons at 8 percent per annum compounded semi-annually until your retirement. Required: If your objective is to have the most money possible for your retirement, which bond is the better buy (other things equal)
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