1) If you were to purchase 5 bonds with a par value of $1000 each with a 7% coupon rate payable annually. How much interest will you earn after 2 years? Show your work.
2) Decide which of the following bonds would bring the greater rate of return if kept until maturity. Both bonds have a $1000 par value and assume they can be sold at face value upon maturity.
Bond 1 has 10 years to maturity with a coupon rate of 5% and a price of $900.
Bond 2 has 8 years to maturity with a coupon rate of 6% and a price of $875.
Determine which bond would have a higher annual rate of return based on time until maturity and total return from the bond. Show all calculations.