Question 2 Mr Asare invests in Bonds X and Y. Both bonds...
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Finance
Question 2
Mr Asare invests in Bonds X and Y. Both bonds have an annual coupon rate of 6% and the same annual yield to maturity of 4%, but with different maturities. Bond X has a term to maturity of 7 years and that of Bond Y, 15 years. Assuming Bond X and Bond Y are issued in $1000.
Determine which of these bonds will have a higher price. (AN 8 marks)
Explain which of these bonds is selling at premium or discount. (AN 2 marks)
The current market rate of interest is 12%. You buy a bond which offers an annual coupon rate of 15% for the next four years, with the first payment in one year. The bond will be redeemed at its par value of $100 in three years.
Required: Solve for the amount you would pay for the bond. (AP 10 marks)
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