a.)Given the opportunity to invest in one of the three bonds listed below, which

Question

a.)Given the opportunity to invest in one of the three bonds listed below, which would
you purchase? Assume an interest rate of 7%.
Bond

Bond          FaceValue           Annual Coupon Rate            Maturity                  Market Price

Russel Inc                 $1000                           4%                                    1 yr                           $990

Thomas Inc                 $1000                         7.5%                                 17 yr                         $990

Stephanie Inc            $1000                           8.5%                                25 yr                           $990

B.) Master card and other credit card issuers must by law print the annual percentage rate (APR) on their Monthly Statements. If the APR is stated to be 18.00% with interest paid monthly, what is the cards EFF%?

Explanation / Answer

A) Price of bonds are, use any bond calculator likehttp://www.calculatorweb.com/calculators/bondcalc.shtml

Russel is 971.96

Thomas is 1048.82

stephanieis 1174.8

Hence we would prefer stephanie as its the costliest and the market price of all the bonds are the same

B)

the EFF is ( 1 + 18/1200 )^12 - 1 = 0.1956 = 19.56%

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