Ivan has just inherited $10,000 from a distant cousin and is considering two bon
ID: 2640538 • Letter: I
Question
Ivan has just inherited $10,000 from a distant cousin and is considering two bonds for investment. Bond A has a $10,000 face value, a 7% coupon, pays interest semiannually and has 9 years to maturity. Bond B has a $10,000 face value, a coupon of 6%, pays interest annually and has 13 years to maturity. The rate expected in the marketplace for investments similar to these is 6.5%.
Bond A Bond B
What is the present value of the coupon stream? ___________ ____________
What is the present value of the face value? ___________ ____________
What is the total present value? ___________ ____________
If the you have to pay the same amount for each one, which would you choose? ______________
A or B
Explanation / Answer
the present value stream of the Bond A= 6.515 and for bond B is 8.853
i will chose to invest in bond A, because it gives high returns with compares with B
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