# Finance Question: You have $20,000 available for investment purposes, and are considering investing in either Bond

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Finance

Question:

Question: You have $20,000 available for investment purposes, and are considering investing in either Bond A or Bond B. Both bonds have a face value of $1,000, five years to run until maturity, and give a yield to maturity of 12%.The coupon interest rate on Bond A is 6% per annum and that on Bond B is 14% per annum. (a) Calculate the selling price of each bond. (b) How many units of each bond (including fractions) could you buy for $20,000? (Answer to three decimal places.) (c) What would be the annual interest income on each of the options calculated in (b)? (Again, use fractions of units to three decimal places.) (d) Assume you can reinvest the interest income as it is received (at the end of each year) at 10% per annum. Calculate the total (face) value of the bond principal plus interest reinvested for your bond A and bond B total investment. (Again, use fractions of units to three decimal places.) Hint: We are reinvesting the interest and thus need the future value of these deposits, plus the future (face) value of the bond at year 5. You need to use the answers derived in (b) and (c) above to calculate separately the total reinvested interests and the future value of bond A and Bond B. (e) Why are the two values calculated in (d) different? If you are concerned that you will earn less than the 12% yield to maturity, which bond would be the better choice? Show calculations of yields to maturity to support your answer. do want the full calculation pls preferably in excel spreadsheet

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