Two bigname firms are competing for investors interested in the same industry, AI office assistants. AugmentYou and
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Question:
a) AugmentYou, Inc., just issued a 7-year corporate bond with $1000 face value. The bond is offering a $67.25 coupon,this amount is paid twice a year.
b) Offriend issues a $1000 face value, zero coupon bond hours later with a 15-year maturity, the bond sells trades for $144.79 in the same market. What effective annual rate of return is the investors of AugmentYou bonds expecting?
c) A bank called SillyCon Gorge Bank wants to maximize the return it can earn by investing it's customers deposits in bonds (ie the money people and businesses are saving). Why?
d) SillyCon follows your advice and invests $10,000,000 of customer deposits in your recommended asset in part C. But quickly the market realizes the risk of these companies is much higher than originally estimated. Does SillyCon wish they had chosen the other bond given this information?
Explain your reasoning to the question above.
Related Book For
Intermediate Accounting
ISBN: 978-0132162302
1st edition
Authors: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
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