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Q: Bond valuation and yield to maturity ( No Answer,   0 Comments )
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 Subject: Bond valuation and yield to maturity Category: Business and Money > Finance Asked by: help123-ga List Price: \$15.00 Posted: 11 Feb 2005 05:21 PST Expires: 11 Feb 2005 05:37 PST Question ID: 472839
 Mark Goldsmith's brooker has shown him two bonds. Rach has a maturity of 5 years, a par value of \$1.000. and a yield to maturity of 12%. Bond A has a cupon intrest rate of 6% paid annually. Bond B has a cupon intrest rate of 14% paid annually. a) Calculate the selling prive b) Mark has \$20,000 to invest. Judging on the basis of the price of the bonds, how many of either one could mark purchase if he were to choose it over the other?(Mark cannot really purchase a fraction of a bond, but for purposes of this question, pretend that he can.) c) Calculate the yearly interest income of each bond on the basis of its cupon rate and the number of bonds that mark could buy with his \$20,000. d) Assume that Mark will invest the reinvest the interest payments as they are paid (at the end of each year) and that his rate of return on the reinvestment is only 10%. For each bond, calculate the value of the principal payment plus the value of Mark's reinvvestment account at the end of the 5 years. e) Why are the two values calculated in part d different? If Mark were worried that he would earn less than the 12% yield to maturity on the reinvestment interest payments, which of these two bonds would be better choice?