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Today, on Nov 1 2016, you decide to diversify your retirement portfolio and talk to your financial advisor about investing in bonds. She recommends two different Canadian Treasury bonds, both of which have a $1,000 face value and pay semi-annual coupons. The first bond has a 4.5% coupon rate and matures on May 1 2024. The second bond has a 3.5% coupon and matures on Nov 1 2022. Your advisor mentions that the yield to maturity on the first bond is 4.20% (APR) and the second bond just traded at their in-house bond desk for $972.

a) What is the price of the first bond?

b) What is the current yield of the first bond?

c) Does the first bond sell at a discount or at a premium?

d) What is the current yield for the second bond?

e) What is the annual effective yield to maturity on the second bond?

f) Which of the two bonds should you buy? Explain briefly.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92081436

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