Which bonds are acceptable for investment? Justify your response with suitable computations.

Bonds:

4% on bond investments.

payment of 25% taxes on any interest income.

1. Pleasant Innovations Ltd. had issued a series of 20-year bonds at 98% of face value (assume face value = $100). These bonds come with a coupon rate of 3% and will be paid semi-annually. By the start of year 5 from now, 5 years would have passed.

Assume that the YTM remains constant over time.

2. D Right Side Inc. will offer a coupon of 4% per annum on its much awaited 20-year bonds. By the start of year 5 from now, these bonds would be 2 years old and would likely sell for a price of $70 per bond (face value = $100). Coupons would be paid annually. Assume that the YTM will remain constant over time.

3. Tried and tested Ltd. has bond issue with an after-tax YTM of 6%. 5 years from now, they have 25 years left to mature and offer a coupon rate of 8% paid annually. These bonds have a face value of $1,000 each.