Coupon growth bond with the terms

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Reference no: EM132017412

1. You are thinking about buying a rare collectible that costs $100,000. The dealer is proposing the following deal: She will lend you the money and you will repay the loan by making the same payment every three years for the next 30 years. If the interest rate is 6% p.a., compounded annually, the amount you will have to pay every three years is closest to:

a) $7,265.

b) $13,587.

c) $19,203.

d) $23,129.

2. BLB Ltd has just issued a “coupon growth bond” with the following terms. Each bond’s face (or maturity) value is $1,000 and the bonds will mature in 5 years’ time. Coupons will be paid on an annual basis at the end of each year. The first year’s coupon will be $100 at the end of year 1, which will then grow at an annual rate of 10% until the bonds mature. If the bond’s yield to maturity is 8% per annum, its price today should be closest to:

a) $972.

b) $1,080.

c) $1,161.

d) $1,275.

Reference no: EM132017412

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