Homework SourseYou are investing in 15 year bonds with some risk attached t
You are investing in 15 year bonds, with some risk attached to each bond option (the risk is equal for each). Given an MARR of 20 % and the following information, which of the bonds (if any) should you invest in:
Bond
Stated value
Annual interest payment
Current Market Price
Bond A
$1000
$72
$480
Bond B
$1000
$105
$630
| Bond | Stated value | Annual interest payment | Current Market Price |
| Bond A | $1000 | $72 | $480 |
| Bond B | $1000 | $105 | $630 |
Solution
Both investments gives return higher than 20%, preferrable is Bond A
Refer below table
| Bond A | Bond B | ||
| Face Value | a | 1000 | 1000 |
| Market Price | b | 480 | 630 |
| Savings | c = a-b | 520 | 370 |
| Bond Tenure (Yrs) | d | 15 | 15 |
| Converted Yearly savings | e = c/d | 35 | 25 |
| Yearly Interest | f | 72 | 105 |
| Total Yearly earnings | g = e+f | 107 | 130 |
| Return % | g/b | 22% | 21% |
