(Answered) Problem 1bond abond

Finance

Problem 1

	Bond A	Bond B	Unit
Maturity	4	7	Years
Coupon	5%	6%	Annual
Price	101.79	102.85	-

You know for certain that the 3 year rate in 4 years will be 8% (annually compounded).

Would it be better to buy bond A or purchase bond B hold it for 4 years and sell it? Justify you answer.

Problem 2

Reinegar Corporation's has just issued a 25 year par bond with a 10% semi-annual coupon. The company's bankers assure Rienegar management that it can raise $3,000,000 by issuing 25-year Original Issue Discount (OID) bonds bearing a 6.25% semiannual coupon. What will be the par value of the OID issue?

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