ZYX Company has two different bonds currently outstanding. Bond X has a face value of $200 000 and matures in 10 years' time. The coupon rate on the bond is 10%. Coupons are paid semi-annually in arrears. Bond Y also has a face value of $200 000 and a maturity of 10 years; it makes no coupon payments over its 10-year life. The yield to maturity (YTM) on both bonds is 12% per year, compounded semi-annually. What is the maximum amount that a rational investor would pay for each of these bonds? Round off your answers to two decimal places. Which of the two bonds should the rational investor invest in, if market interest rates are expected to rise?
ZYX Company has two different bonds currently outstanding. Bond X has a face value of $200 000 and matures in 10 years' time. The coupon rate on the bond is 10%. Coupons are paid semi-annually in arrears. Bond Y also has a face value of $200 000 and a maturity of 10 years; it makes no coupon payments over its 10-year life. The yield to maturity (YTM) on both bonds is 12% per year, compounded semi-annually. What is the maximum amount that a rational investor would pay for each of these bonds? Round off your answers to two decimal places. Which of the two bonds should the rational investor invest in, if market interest rates are expected to rise?
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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ZYX Company has two different bonds currently outstanding. Bond X has a face value of $200 000 and matures in 10 years' time. The coupon rate on the bond is 10%. Coupons are paid semi-annually in arrears.
Bond Y also has a face value of $200 000 and a maturity of 10 years; it makes no coupon payments over its 10-year life. The yield to maturity (YTM) on both bonds is 12% per year, compounded semi-annually.
What is the maximum amount that a rational investor would pay for each of these bonds? Round off your answers to two decimal places. Which of the two bonds should the rational investor invest in, if market interest rates are expected to rise?
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