Calculate the selling price for the bonds

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Azhar Aziz broker has shown him two bonds. Each has a maturity of 5 years, a par value of $1,000, and a yield to maturity of 12%. Bond A has a coupon interest rate of 6% paid annually. Bond B has a coupon interest rate of 14% paid annually.

(i) Calculate the selling price for each of the bonds.

(ii) Assume that Azhar will reinvest the interest payments as they are paid (at the end of each year) and that his rate of return on the reinvestment is only 10%. For each bond, calculate the value of the principal payment plus the value of Azhar aziz's reinvestment account at the end of the 5 years.

(iii) Explain which bond is better.

Reference no: EM132766191

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