Ace Corporation has issued two bonds. The principle is $1,000 on both. Bond A has an 6% semi-annual coupon and Bond B has a 8% semi-annual coupon. Both mature in 10 years. The required rate of return is 7% annually, 3.5% semi-annually.

1. Use a financial calculator or Excel to compute the value of Bond A and Bond B. If you use a financial calculator, please provide all inputs and outputs, including those of any online calculators (and remember to cite any source(s) used). Please attach the file to your assignment, along with answering the following questions.
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3. How do the values of the bonds compare and how would you put this information to use? 
4. Why would such a comparison be useful to a corporation or an individual? 
5. How do bonds play an investment role to corporations or individuals? 
6. What is the purpose for corporations to issue bonds? 
7. Lastly, explain the concept of bonds trading at a "discount" or "premium".

Answer rating: 100% (QA)

Answer For a principle amount of P the semiannual coupon rate of r and for a maturity period of n years we can use the following formula to compute the maturity amount Future Value or Maturiy P1 2n 2 ... View the full answer