Computation of value or price of bond
Corp Inc. has two different bonds currently outstanding. Bond A has a face value of $40,000 and matures in 20 years. The bond makes no payments for the first 6 years, pays $2,000 semi-annually for the subsequent 8 years and finally pays $2,500 semi-annually for the last 6 years. Bond B also has a face value of $40,000 and matures in 20 years. However, it makes no coupon payments over the life of the bond. If the stated annual interest rate is 12 %, compounded semi-annually,
a) What is the price of Bond A?
b) What is the price of Bond B?