Which of the following assets is worth the most? Which is worth the least? a) a

Question

Which of the following assets is worth the most? Which is worth the least?

a) a 25 year, $1,500,000 zero-coupon (no interest) bond

b) a 40 year annuity paying $25,000 per year

c) a new 10 year bond that pays $20,000 per year in interest income plus the return of the principal of $400,000 at maturity

For purposes of this problem, assume that we have determined that an appropriate discount rate to apply for all three instruments is 6%. Assume also that all payments occur at the ends of years involved.

Explanation / Answer

Which of the following assets is worth the most? Which is worth the least? a) a

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