Your cousin has asked for your advice on whether or not to buy a bond for $995, which will make one payment of $1,200 five years from today, or invest in a local bank account. a. What is the internal rate of return on the bond's cash flows? What additional information do you need to make a choice? b. What advice would you give her if you learned the bank is paying 3.5% per year for five years (compounded annually)? c. How would your advice change if the bank were paying 5% annually for five years? If the price of the bond were $900 and the bank pays 5% annually?
Your cousin has asked for your advice on whether or not to buy a bond for $995, which will make one payment of $1,200 five years from today, or invest in a local bank account. a. What is the internal rate of return on the bond's cash flows? What additional information do you need to make a choice? b. What advice would you give her if you learned the bank is paying 3.5% per year for five years (compounded annually)? c. How would your advice change if the bank were paying 5% annually for five years? If the price of the bond were $900 and the bank pays 5% annually?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Please give me detailed answer with formula, dont use Excel!
Transcribed Image Text:.Your cousin has asked for your advice on whether or not to buy a bond for $995,
which will make one payment of $1,200 five years from today, or invest in a local
bank account.
a. What is the internal rate of return on the bond's cash flows? What additional
information do you need to make a choice?
b. What advice would you give her if you learned the bank is paying 3.5% per year
for five years (compounded annually)?
c. How would your advice change if the bank were paying 5% annually for five
years? If the price of the bond were $900 and the bank pays 5% annually?
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