Suppose you have the choice of investing in one of the following. (a) A zero-coupon bond which

Question:

Suppose you have the choice of investing in one of the following.
(a) A zero-coupon bond which costs $513.60 today, pays nothing during its life, and then pays $ 1,000 after five years.
(b) A bond that costs $ 1,000 today, pays $ 113 in interest semiannually, and matures at the end of five years with a of $ 1,000 to be repaid. Which bond would provide the higher yield?
Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...