Assume today is July 15th 2015 and Anne Showboat has an outstanding loan with a principal of $100,000 that must be paid in full in April 21st, 2022 (i.e., 6 years, 277 days or 6.759 years). She seeks to earn at least a 10 percent annual rate of return on her investments. She has engaged 2 financial advisory firms, Citizens Bank and JP Morgan Chase Bank to evaluate the following three bond alternatives with the intent of selecting the best bond. Which bond alternative meets Anne's liability needs.
Investment alternative #1: Buy a bond on 7/15/13 with 3 years remaining to maturity at Par, followed by a purchase of another 3.759 years bond also at Par. The coupons and yields on these respective bonds are 10%. Investment alternative
#2: Buy a 10% Par bond with 6.759 years to maturity. Investment alternative #3: Buy a 10% Par bond with 10 years to maturity.