Call “Bond A” a US Treasury 30-year bond that was issued with a 10% coupon on Dec 31, 1980. On Dec 31, 2000 this is now a 10-year maturity bond. Suppose prevailing interest rates are 4%. a. What is the fair market price for Bond A? b. The US Treasury issued “Bond B”, a new 10-year bond on December 31, 2000 with a 4% coupon. What is the fair market price of this bond? c. As an investor, which bond would you prefer to purchase?

Answer rating: 100% (QA)

a To calculate the fair market price for Bond A we first need to calculate the remaining payments on ... View the full answer