Question

Bond valuation and yield to maturity  Personal Finance Problem Mark​ Goldsmith's broker has shown him two bonds issued by different companies. Each has a maturity of 6 years, a par value of $1,000​, and a yield to maturity of 8.40%. The first bond is issued by Crabbe Waste Disposal and has a coupon interest rate of 6.318​% paid annually. The second ​ bond, issued by Malfoy​ Enterprises, has a coupon interest rate of 8.80​% paid annually.

A. Calculate the selling price for each of the bonds.

b.  Mark has $20,000 to invest. If he wants to invest only in bonds issued by Crabbe Waste​ Disposal, how many of those bonds could he​ buy? What if he wants to invest only in bonds issued by Malfoy​ Enterprises?

c. What is the total interest income that Mark could earn each year if he invested only in Crabbe​ bonds? How much interest would he earn each year if he invested only in Malfoy​ bonds?

d. Assume that Mark will reinvest all the interest he receives as it is paid and that his rate of return on the reinvested interest will be

11​%. Calculate the total dollars that Mark will accumulate over 6 years if he invests in Crabbe bonds or Malfoy bonds. Your total calculation will include the interest Mark​ gets, the principal he receives when the bonds​ mature, and all the additional interest he earns from reinvesting the coupon payments he receives.

Answer 1