Two 25-year mortgage-backed bonds are issued. Bond 1 has par value of $10,000 and promises to pay 10.5% annual coupon. Bond 2 is a zero coupon bond which promises to pay $10,000 (par) after 25 years. At issue, bond market investors, need a 12% interest rate on both bonds.
What price does Bond 1 fetch at issuance?
What price does Bond 2 fetch at issuance?
What price does Bond 2 fetch at issuance?