3&4

3. Consider the two bonds described below: Bond A 15 10 BondB 20 Maturity (years) Coupon rate (%) (paid semiannually) Par value $1,000 $%1,000 a. If both bonds had a required return of 8%, what would the bonds' prices be? b. Describe what it means if a bond sells at a dis- count, a premium, and at its face amount (par value). Are these two bonds selling at a discount, premium, or par? c. If the required return on the two bonds rose to 10%, what would the bonds' prices be? 4. A two-year $1,000 par zero-coupon bond is cur- rently priced at $819.00. A two-year $1,000 annuity is currently priced at $1,712.52. If you want to invest ,000 in one of the two securities, which is a better $50 buy? (Hint: Compute the yield of each security.)