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.
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