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Amie has just inherited $5,000 from a distant cousin and is considering two bonds for investment. Bond A has a $5,000 face value, an 8% coupon, pays interest semiannually and has 13 years to maturity. Bond B has a $5,000 face value, a coupon of 6%, pays interest annually and has 9 years to maturity. The rate expected in the marketplace for investments similar to these is 7%.

                               Bond A   Bond B

What is the present value of the coupon stream? ___________ ____________

What is the present value of the face value? ___________ ____________

What is the total present value?           ___________ ____________

If the prices are equal, which should Amie choose? ______________

                               A or B

Financial Management, Finance

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