Problem:
You are considering the following bonds to include in your portfolio:
|
Bond 1
|
Bond 2
|
Bond 3
|
|
Price
|
$900.00
|
$1,100.00
|
$1,000.00
|
|
Face Value
|
$1,000.00
|
$1,000.00
|
$1,000.00
|
|
Coupon Rate
|
7.00%
|
10.00%
|
9.00%
|
|
Frequency
|
1
|
2
|
4
|
|
Maturity (Years)
|
15
|
20
|
30
|
|
Required Return
|
9.00%
|
8.00%
|
9.00%
|
Required:
Question: Determine the highest price you would be willing to pay for each of these bonds using the PV function. Also find whether the bond is undervalued, overvalued, or fairly valued.
Note: Show all workings.