Question: Question 8 Company A issues a coupon bond with a face value of $20,000. The bond has coupon payments of $1,000 and a maturity of

Question 8 Company A issues a coupon bond with a face

Question 8 Company A issues a coupon bond with a face value of $20,000. The bond has coupon payments of $1,000 and a maturity of 20 ycars. Company B issucs a bond with a face value of $15,000, coupon payments of $800 and a maturity of 5 years. If the interest rate (ie, yield to maturity) is currently 5%; 1. compute the price of bond A 2. compute the price of bond B 3. as an investor, would you buy bond A or bond B? Question 9 You buy a bond in the primary market with a face value of $7,000. The coupon payments on the bond are yearly payments of $500 and maturity will be reached in 3 years. After holding the bond for 1 year, the yield to maturity changes from 5% to 3% and you decide to sell it. 1. compute the price of the bond at the time it is purchased in the primary market. 2. compute the price of the bond at the time it is sold in the secondary market. 3. what is the rate of capital gain on the bond when it is sold? 4. what is the rate of return on the bond

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