Which of the annuity contracts has the higher present value

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Reference no: EM132036867

a. What is the most that a rational investor would be willing to pay for the following bond: face value = $1000; annual coupon rate = 9 percent; issued a year ago today, and matures 9 years from today? The effective market rate of interest (discount rate) is 6 percent?

b. Compare two annuity contracts.Annuity Contract A pays its holder $10,000 per year for 10 years, at the end of each year, beginning 1 year from today.Annuity B pays its holder $10,000 per year for 10 years, at the beginning of each year, beginning today.The relevant rate of discount for both contracts is 8 percent. Which of the annuity contracts has the higher present value? How much higher?

Reference no: EM132036867

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