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ABC company has two bonds outstanding bond A and bond B. Bond A is a 20...

ABC company has two bonds outstanding bond A and bond B. Bond A is a 20 years semi-annual bond, which was issued 10 years ago with a $1000 par value and coupon interest rate of 8%. Bond B, on the other hand, is a 35-year annual bond, which was issued 20 years ago with a $1000 par value and coupon interest rate of 14%. The market price of bond A and bond B are $ 900 and $ 1100 respectively. Currently the yield to maturity on similar risk investments is 12 percent.

a)      What is the value of bond A today?

b)     What is the value of bond B today?

c)      As a potential investor which bond would you choose to buy and why?  

Solutions

Expert Solution

a)

b)

c)

As a potential investor you should buy Bond B

jeff jeffy answered 1 year ago
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