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    Analyzing the given investment alternatives

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    An investment fund is considering two different bond investments with equal risk. The investment firm expects an annual return of 15% for all investments. Determine the maximum purchase price of the two following bonds on July 1, 2011. Which is the better investment?

    a. Zero coupon bond with a face value of $250,000 with a maturity date of July 1 2015
    or b. Coupon bond with a face value of $200,000 with an annual coupon rate of 5% paid twice a year and with a maturity date of July 1 2020.

    See the attached file.

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    https://brainmass.com/economics/bonds/analyzing-investment-alternatives-411971

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    Solution Preview

    Please refer attached file for better clarity of formulas in MS Excel.

    a. Zero coupon bond with a face value of $250,000 with a maturity date of July 1 2015

    Required rate of return=RATE=15%
    Number of periods=NPER= 4
    Face Value of bonds=Maturity amount=FV=250,000
    Coupon payment=PMT=0
    Type of payment=Year End=0
    Maximum price of investment will be equal to PV of all cash ...

    Solution Summary

    Solution analyzes the two given investment alternatives.

    $2.19

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