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How much does an investor is willing to pay for each bond

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QUESTION - To expand its business, the Chairman of Kingston Outlet factory would like to issue either a Bond X with par value of RM1,000, coupon rate of 6% percent, and maturity of 10 years from now or Bond Y with equal par value and maturity period; but has a coupon rate of 7.4% paid semi-annually.

a) How much does an investor is willing to pay for each bond?

b) Based on the answer in (a),

(i) which bond is a better option for Kingston Outlet Factory to raise its capital with and

(ii) which bond is a better option for an investor?

c) If Eric, a novice investor was to pay the current market price of RM950 for each bond, what would be the yield-to-maturity (YTM) on the bonds? Advise him on the best option and why he should take based on the YTM calculated.

Reference no: EM133022365

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