Risk of the bond

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Bond A is a 1-year zero-coupon bond. Bond B is a 2-year zero-coupon bond. Bond C is a 2-year 10% coupon bond that pays annually. The yield to maturity (annually compounded) on bond A is 10%, and the price of bond B is $84.18. Answer the following:

(a) What is the price of bond A per $100 of face value?

(b) What is the yield to maturity on bond B?

(c) What is the price of bond C per $100 of face value?

(d) Using the rates in (a) and (b), calculate the NPV of a project that pays out $840 one year from now, $340 two years from now, and costs $1000 today. Assume the risk of these cash flows is the same as the risk of the bond. Using the NPV rule, do you accept this project?

Reference no: EM132122780

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