Question
You are interested in a bond that has just been issued for five years having a face value of $5000. The bond pays $60 in
You are interested in a bond that has just been issued for five years having a face value of $5000. The bond pays $60 in interest semi-annually and you are interested to buy it at par, if available (Say Bond A). You are also interested to buy an alternative bond, say Bond B, having a face value of $1000, six year that returns $30 in semi annual interest payments and has six years remaining before it matures. Given Bond A selling at par answer the following questions. a) What is the going rate of return on bond A and maturity? b) What should you be willing to pay for bond B? c) How will your decision change for Bond B in part b, if Bond A pays $40 in semi-annual interest instead of $60 but still sells at par? (There is no change in Bond B
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