Ivan has just inherited $10,000 from a distant cousin and is considering two bonds for investment. Bond A has a $10,000 face value, a 6% coupon, pays interest semiannually and has 9 years to maturity. Bond B has a $10,000 face value, a coupon of 5%, pays interest annually and has 12 years to maturity. The rate expected in the marketplace for investments similar to these is 5.5%.
Bond A Bond B
What is the present value of the coupon stream? ___________ ____________
What is the present value of the face value? ___________ ____________
What is the total present value? ___________ ____________
If the prices shown in the Wall Street Journal are equal, which would you choose? ______________
A or B