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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Solution analyzes the two given investment alternatives.
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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 ...
Education
- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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