You need to present to your client, Alice Cartwright, some investment options for her to choose from. Her choices are between the following 2 bonds:
|
Bond
|
Description
|
Face Value
|
Coupon Rate
|
Years to Maturity
|
|
Bond A
|
corporate bond in ABA company
|
$1,000
|
10% coupon
|
12 years, paying annual payments
|
|
Bond B
|
corporate bond in ABA company
|
$1,000
|
10% coupon
|
2 years, paying annual payments
|
For each bond, answer the following questions:
- What is the valuation of the bond if the market interest rates are 12%?
- What is the valuation of the bond if the market interest rates are 6%?
- What is the valuation of the bond if the market interest rates are 2%?
- What is the value of the bond at the present time?
- What will the bond be worth at maturity?
- Are there differences in bond prices? If so, explain why.