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Annie Kavitha
Annie Kavitha, Master's Degree
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2 BONDS HAVE A PAR VALUE OF $1,000. One is 5%, 15 year bond

Resolved Question:

2 BONDS HAVE A PAR VALUE OF $1,000. One is 5%, 15 year bond priced to yield 8%. The other is a 7%, 20 year bond priced to yield at 6%.
Which one of these two has the lower price...? Assuming annual compounding in both cases....
Submitted: 5 years ago.
Category: Business and Finance Homework
Expert:  Annie Kavitha replied 5 years ago.


Click on the link below for solution.

Customer: replied 5 years ago.
How did it work out that both numbers are minus numbers...?
Expert:  Annie Kavitha replied 5 years ago.

The price of the bond is a cash outflow for which interest and the maturity values become cash inflows from an investors point of view.

From a company's point of view interest amount and maturity values are outflows with negative sign and price of the bonds is a cash inflow with positive sign which looks like the below:

click below for solution.

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